‭Annuities – cash flows that occur annuity for a finite time period‬
‭Discounting an annuity starting in‬‭one year’s time‬
‭PV = Annual Cash flow x annuity factor yr n‬
‭Discounting an annuity starting‬‭immediately‬
‭PV = (Annual Cash flow x annuity factor yr n-1) + annual cash flow‬
‭Discounting an annuity starting in‬‭year 4‬
‭PV = (Annual cash flow x annuity factor yr n) x discount factor for the yr before the annuity starts‬
‭Perpetuities – cash flows that continue into the foreseeable future‬
‭Discounting a perpetuity starting in‬‭one year’s time‬
‭PV = Annual Cash flow / discount rate‬
‭Discounting a perpetuity starting‬‭immediately‬
‭PV = (Annual Cash flow / discount rate) + annual cash flow‬
‭Discounting a perpetuity starting in‬‭year 4‬
‭PV = (Annual cash flow / discount rate) x discount factor for the yr before the perpetuity starts‬