Growing Perpetuity Calculation Examples Help

Growing Perpetuity Calculation Examples, Illustrations, Concepts, Sample Help Online


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Concept of Growing Perpetuity Calculation

The present value of a growing perpetuity formula is the cash flow after the first period divided by the difference between the discount rate and the growth rate.
The growing perpetuity is that amount of money which is received for an infinite amount of time that grows at a proportionate rate. This formula is basically used by commercial real estate. The discount rate must be higher than the growth rate when using the present value of a growing perpetuity formula.
Present value of a growing perpetuity= D1/r-g
D is the dividend of 1st period
r is the discounted rate
g is the growth rate
Example of PV of Growing Perpetuity

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Growing Perpetuity Calculation Examples Explanation

Let’s understand the calculation of growing perpetuity.
Example: Suppose an annual cash flow of $1000 that will continue indefinitely which is expected to grow at 5% per year and the required return used for the discount rate is 10%. The equation for this example of the present value of a growing perpetuity formula would be
$1000/ .10 – .05= $20000
Hence it would return a present value of $20,000.
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