The formula for perpetual annuities takes a simpler form: Present Value = Payments / Interest Rate In the previous example, an infinite number of payments with a 2.4 percent inflation rate produce ...

Scenario #2 If the current interest rate level were 7%, the Present Value of this perpetuity would naturally decrease. We could calculate it as: PV = 2.25/.07 = $32.14 Scenario #3 ...

So, if the incoming cash in year two is $2,000 and the outgoing cash is $1,000, taking the difference gives a net cash flow of $1,000. If the discount rate is 5 percent, raising 1.05 to the power ...

Thus, in the earlier example, the present value of $1.10 a year from now is $1.10 x .909, or $1.00. Fortunately, this math is automated in spreadsheet packages.