PPT Slide
Example - Net present value of a 25% discount rate. Cash flow
in year 1 is $50,000 and we are estimating a 20% increase in
annual cash flow. Beginning in the 5th year we have a net level cash
flow in perpetuity. The value of future years return can be calculated by
dividing the annual amount by the capitalization (discount) rate.
(1 + .25)1 (1 + .25)2 (1 + .25)3 (1 + .25)4 (1 + .25)5
$50,000 $60,000 $72,000 $86,000 $103,680/0.25
PV = ----------- + ----------- + ----------- + ---------- + ---------------- = $286,549