Perpetuity Example
ABC Company offers a plan of perpetuity of $ 50,000. Discount
Rate is 15%. What would be the present value of perpetuity?
Solution
Perpetuity
Formula
=
Installment per year/Discount Rate
|
Expected Installment
|
$ 50,000
|
|
Discount Rate
|
15%
|
|
Present Value of future installment
|
$ 333,333
|
Technical it
means that a person can accept $ 333,333 in place of receiving $ 50,000 for
ever because the present value of $ 50,000 per annum is 333,333.
