Remember Me?

#1
September 15th 05, 04:44 PM
 Mike Posts: n/a
How to calculate NPV of an infinite series?

I have a series of cashflows, forecast to grow at say 2% each year and
go on indefinitely. Is there a formula or function I can use to get
the value of the maximum net present value of this series? The only way
I can find so far is to model it for 100's of periods, use the NPV
function for each year in turn, then see at what year the NPV stops
changing... must be a better way surely?

#2
September 15th 05, 05:33 PM
 Vincnet. Posts: n/a

Say D is your discount rate, CF the annual constant cash flow. (note that D
must be above 2% to estimate an "infinite" NPV)
NPV = Sum CF* ((1+2%)/(1+D))^N

When N is infinite, after simplification,
NPV = CF * 1 / (1 - r)
where r = (1+2%)/(1+D)

--
A+

V.

"Mike" wrote:

I have a series of cashflows, forecast to grow at say 2% each year and
go on indefinitely. Is there a formula or function I can use to get
the value of the maximum net present value of this series? The only way
I can find so far is to model it for 100's of periods, use the NPV
function for each year in turn, then see at what year the NPV stops
changing... must be a better way surely?

#3
September 15th 05, 06:10 PM
 Dana DeLouis Posts: n/a

Suppose you start with a value of "s" that grows by a factor of g, and r is
discount rate.

then NPV as the time period tends toward infinity is:
NPV = (g*s) / (r-g)

For your example, g=1.02, and r=1.08

HTH
--
Dana DeLouis
Win XP & Office 2003

"Mike" wrote in message
ups.com...
I have a series of cashflows, forecast to grow at say 2% each year and
go on indefinitely. Is there a formula or function I can use to get
the value of the maximum net present value of this series? The only way
I can find so far is to model it for 100's of periods, use the NPV
function for each year in turn, then see at what year the NPV stops
changing... must be a better way surely?

 Posting Rules Smilies are On [IMG] code is On HTML code is OffTrackbacks are On Pingbacks are On Refbacks are On

 Similar Threads Thread Thread Starter Forum Replies Last Post Mike Excel Worksheet Functions 10 April 26th 05 08:04 PM NuttinButFun2 Excel Worksheet Functions 1 April 18th 05 10:08 PM vrk1 Charts and Charting in Excel 3 April 1st 05 07:21 AM vrk1 Excel Discussion (Misc queries) 0 March 31st 05 11:19 PM rich zielinski via OfficeKB.com Charts and Charting in Excel 3 March 30th 05 06:23 PM

All times are GMT +1. The time now is 09:16 PM.