NPV

Dear Mr Moffat I came across this question and just to make sure that I have understood correctly what you said in your explanation, could you please check the working of below question ? What is the present value of $ 8,000 first receivable in 4 years time and thereafter every year in perpetuity? Cost of capital 6% Working : 8,000/0.06 = $ 133,333 Less annuity discounted factor (2,673) $ 21,384 Total perpetuity $ 111,949 Your explanation “Quick question about perpetuities. I know how to calculate a perpetuity that starts now, but in a practice exam it said that payments would begin in 4 years time. Do I need to discount for years 1-3 and if so, how would I do that? There two ways that both give the same answer. Either use 1/r for the perpetuity, and then discount for a further three years using the normal discount factor for three years. Or Use 1/r for the perpetuity, and then subtract the three year annuity discount factor ( so as to be left with 4 to infinity)” Thanks Gabbi