Present value of a perpetuity, Financial Accounting

PVA = A(1 + k)-1 +  A(1 + k)-2+..... + A(1 + k)+ 1+ A (1 + k)

Multiplying both the sides of Eq (a7) by (1+k) provides:

PVA  = (1 +k) = A(1 +k) +A (1 +k)-1 +......A (1 +k)-∞ + 2 +A(1 + k)-∞ +1

Subtracting Eq (a7) from eq (a8) provides:

PVA k = A [1 - (1 + k)]

 As (1 + k)-∞  → o eq.(a8) turns into:

PVA k = A

 ⇒ PVA = A/k

Posted Date: 4/9/2013 2:44:49 AM | Location : United States

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