Present Value of a Perpetuity Formula


PV = Pmt / i
Variables used in the annuity formula
PV = Present Value
Pmt = Periodic payment
i = Discount rate


The present value of a perpetuity formula shows the value today of an infinite stream of identical cash flows made at regular intervals over time.

The formula discounts the value of each cash flow back to its value at the start of period 1 (present value).

Excel Function

The Excel PV function can be used instead of the present value of a perpetuity formula, and has the syntax shown below.

PV(i, n, pmt, FV, type)

*The FV and type arguments are not used when using the Excel present value of a perpetuity function.

Present Value of a Perpetuity Formula Example

If a payment of 4,000 is received each period for ever, and the discount rate is 5%, then the value of the payments today is given by the present value of a perpetuity formula as follows:

PV = Pmt / i
PV = 4,000 / 5%
PV = 80,000.00

The same answer can be obtained using the Excel PV function as follows:

PV = PV(i, n, pmt)
PV = PV(5%,999,-4000)
PV = 80,000.00

The Excel formula requires a value for n. Although the value should be infinite, a value of 999 is used as an approximation in the formula.

The present value of perpetuity formula is one of many annuity formulas used in time value of money calculations, discover another at the link below.

Present Value of a Perpetuity Formula November 6th, 2016Team

You May Also Like

Related pages

income statement spreadsheetfob shipping point and destinationannuity payout calculator excelliquidation journal entriesvariable overhead formulawhat is provision for doubtful debtfixed asset turnover ratio industry averagelifo reserve accountpresent value of lump sum formulaentry for unearned revenuefactoring receivables exampleannuity fv formulaeffective interest rate calculator excelliquidity ratio quick ratioaccounts receivable turnover equationprepaid expenses journal entriesvariable manufacturing overheadbad debts written off journal entryfactoring finance examplevoucher designscurrent liabilities ratio formulaledger accounting examplemarkup vs gross marginjournalizing accountingasset register examplehow to prepare for accounts payable interviewassets equals liabilities plus equityending merchandise inventorynet present value perpetuitytemplate accounting excelpreparing a bank reconciliation statementmanagerial accounting journal entriesreconciling supplier statementsoperating cash flow calculatorhow to calculate irr on excelaccounts payable general ledgerformula for present value of an annuityjournal entries for dummiesthe contribution margin income statementtvc calculationmonthly bank reconciliation templatedebtors journalperpetuity present valuefinancial forecast templateexample of petty cash voucherthe income summary account is a permanent accountformula of debtors turnover ratioshipping fob termspmt excel functionformula for discount rate in excelhow to calculate the retained earningsadjusting entries financial accountingfob shipping point means the seller pays cost of freightbookkeeping pdf tutorialequivalent units are calculated bysalvage value in npvdividend declaration form templateaccounting spreadsheet templatefuture value of periodic paymentsinventory calculation in excelunderapplied overhead journal entrypv excel formulais petty cash an asset or expenseaccounting payback periodexcel straight line depreciationeffective interest rate amortization calculatorwhat is debit note with examplefuture value of growing annuity calculatorexamples of stockholdersaccrued interest on notes receivable journal entrypresent value of annuity excelgeneral entries general ledger examples