Present Value of a Perpetuity

Jane is considering an investment that pays her a perpetual cash flow. She anticipates receiving $2,500 at the end of each year indefinitely. If she requires a return of 5% per year on her investment, what is the present value of this perpetuity?

To find the present value of a perpetuity, the formula used is:

$$PV = rac{C}{r}$$

where:

• PV = Present value of the perpetuity
• C = Cash flow per period
• r = Discount rate (interest rate)