Overview
Calculate the present value of a perpetuity - a stream of equal (or steadily growing) cash flows that continues forever - using two clearly separated modes. The standard perpetuity mode computes PV = C ÷ r, for a level cash flow C discounted at rate r. The growing perpetuity mode computes PV = C1 ÷ (r − g), for a cash flow that grows at a constant rate g each period, where C1 is next period's cash flow. The growing perpetuity requires the discount rate to be strictly greater than the growth rate - if r ≤ g, the formula implies an infinite or negative present value, which isn't a real result, so the calculator rejects that input with a clear message instead of showing Infinity or NaN. The two modes are kept as an explicit toggle rather than blended into one form, since mixing a standard cash flow with a growth rate (or vice versa) would silently compute the wrong model. Useful for valuing preferred stock, certain bonds, or any theoretical infinite cash flow stream, and a building block for the Gordon Growth (dividend discount) and other constant-growth valuation models. Runs entirely client-side, and this is an informational estimate, not financial advice.
Best for: Valuing an infinite stream of level or steadily growing cash flows, such as preferred stock
How to use this tool
- Choose standard or growing. Standard: a level cash flow forever. Growing: a cash flow that increases by a constant rate each period.
- Enter the cash flow and discount rate. For growing perpetuities, enter next period's cash flow (C1) and an expected growth rate (g) as well.
- Read the present value. PV = C ÷ r (standard), or PV = C1 ÷ (r − g) (growing).
Frequently asked questions
The calculator rejects the input with a clear error message rather than showing Infinity or a negative number. Mathematically, r ≤ g makes the (r − g) denominator zero or negative, implying an infinitely large or negative present value - a sign the growing perpetuity's constant-growth assumption doesn't hold for those inputs.
The Gordon Growth Model used in the DDM Calculator is a growing perpetuity applied specifically to dividends - it uses exactly the same PV = C1 ÷ (r − g) formula, just with C1 being a dividend rather than a generic cash flow. This calculator is the general-purpose version, useful for any perpetual cash flow stream, not only dividends.
No real cash flow stream lasts literally forever, but perpetuities are a useful simplifying model for valuing instruments with very long or indefinite lives - such as certain preferred shares or government consols - and as the terminal-value building block inside more detailed models like a multi-stage DCF.