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Sagot :
$888,888.88 is the present value of an annual payment that is received in perpetuity after the discount rate of 9%
Procedure:
PV of Perpetuity = ICF / r
Here, the identical cash flows are regarded as the ICF.
The interest rate or the discounting rate is expressed as r.
PV = ICF / r
PV = 80,000 / 9%
PV = $888,888.88
Hence, the present value in perpetuity is $888,888.88.
About Present Value of Perpetuity:
Perpetuity is the revenue stream that a person receives for an indefinite amount of time, and its present value is determined by discounting identical future cash-flows using a certain discounting rate. Although the cash flows in this case are endless, their present value is only of limited worth.
A revenue stream that has an unlimited life is called perpetuality, and it rises at a proportionate pace. The cash flows ought to be the same. The dividend growth model is basically where the formula comes from. The terminal value of the identical cash-flows is calculated using the formula.
Know more about cash-flows here:
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