Section outline

  • By now, we are well familiar with the concept of present value and future value. We have also seen, however, that the computations can become quite cumbersome for investment projects with long-term cash flow streams. In this section, we take the duration of the cash flow stream to the extreme and discuss the valuation of investment projects that are expected generate a constant (or a constantly growing) cash flow and run forever. These are so-called perpetuities. As we will see in later modules, the concept of a perpetuity is extremely popular in the context of firm valuation.

    • This section's reading assignment and review questions are listed below.