Perpetuity means indefinitely. In corporate finance terms, the perpetuity is often used in bonds that pay interest forever. The perpetual bonds pay interest every year that has not a defined maturity date. This is a reason that perpetual bonds are classified as equity instead of debt.
Another important characteristic is that the rate of return is very nominal on perpetual projects. For theoretical purposes, there are some projects that generate cash flows forever.
A project costing $5.0 million that generates $300,000 every year in perpetuity. Assuming the discount rate of 7% per annum, the present value of the project-related cash flows will be
PV = $300,000/7% = $4,285,714
Based on this evaluation the NPV of this project is negative $714,286 ($4,285,714 - $5,000,000). This means that the project is looking attractive due to its perpetual nature of cash flows, but should not be accepted as it results in a negative NPV.
The City of Lynnwood was recently incorporated and had the following transactions
The interest rate is 10%. a. What is
Repeat E12-13, but now assume that the licence was
What is the equation for the present value of a growing perpetuity
Tool Manufacturing has an expected EBIT of $57,000 in
Overnight Publishing Company (OPC) has $2.5 million
To fund its wars against Napoleon, the British government sold consol
When Alfred Nobel died, he left the majority of his estate
Suppose that KMS in Problem 4 decides to initiate a dividend instead
Repeat E12-13, but now assume that the licence was
