Introduction to Corporate Finance - Coursera
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  • Introduction
  • Corporate Finance - An Introduction
  • Time Value of Money
    • Discounting
    • Compounding
    • Annuity
    • Growing Annuity
    • Perpetuity
    • Growing Perpetuity
    • Taxes
    • Inflation
  • Interest Rates
    • APR and EAR
    • Term Structure
  • Discounted Cash Flow
    • Decision Making
    • Free Cash Flow
    • Forecast Drivers
    • Forecasting Free Cash Flow
    • Sensitivity Analysis
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  1. Time Value of Money

Perpetuity

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Last updated 4 years ago

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A perpetuity is an infinite stream of cash flows of identical magnitude and equal spacing in time.

E.g., Perpetuities, consol bonds

PV of Perpetuity = CFR\frac{CF}{R}RCF​

Again, this formula assumes that the first cash flow occurs at t=1.

Simple Example

How much do you have to save now to be able to withdraw $100 at the end of each year, forever, 
if you earn 5% per annum?

PV = 1000.05\frac{100}{0.05}0.05100​ = $2000