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Lecture 3: Discounted Cash Flow Valuation (Perpetuity (Defination…
Lecture 3: Discounted Cash Flow Valuation
NPV
Formula
NPV = -COST +PV
Decision Rule
Positive NPV: Accept
Negative NPV: Reject
Annuity
Level of stream cash flow that last for a certain period
Formula
Perpetuity
Defination
Constant Stream of Cash Flow that never ends
Formula
P= C/r
Growing Perpetuity Formula
P=C/(r-g)
2.Annuity
Definition
Constant level of stream cash flow that is fixed for a certain
Formula
P = (r/PV)/ (1- (1+r)^n)
Growing Annuity
P/(r-g) [1 - {(1+g)/(1-r)}^n]