About Growing Perpetuity Calculator (Formula)
The Growing Perpetuity Calculator is a financial tool used in finance and investment to calculate the present value of a series of cash flows that are expected to continue indefinitely and grow at a constant rate. The formula for calculating the present value of a growing perpetuity is as follows:
Present Value (PV) = Cash Flow (CF) / (Discount Rate (r) – Growth Rate (g))
Where:
- Present Value (PV) represents the current value of the growing perpetuity, typically measured in currency units (e.g., dollars, euros).
- Cash Flow (CF) is the expected cash flow for the first period.
- Discount Rate (r) is the rate of return or discount rate used to calculate the present value, typically expressed as a decimal.
- Growth Rate (g) is the constant rate at which the cash flows are expected to grow indefinitely, also expressed as a decimal.
The formula calculates the present value by dividing the first cash flow (CF) by the difference between the discount rate (r) and the growth rate (g). This formula assumes that the cash flows will continue to grow at the constant rate (g) indefinitely.
The Growing Perpetuity Calculator is used in various financial scenarios, including valuing stocks with growing dividends, estimating the present value of cash flows from a growing business, and determining the value of perpetuities that are expected to grow over time. It is a valuable tool for investors and financial analysts in assessing the long-term value of investments.