NPV of Perpetuity can be calculated by using a simple formula if the yearly cash flow amounts remain constant.

**Present Value or PV = Cash Flow / Discount Rate**

If you have to make an investment today (at year 0) for the perpetuity to generate the yearly cash flows, the NPV of perpetuity can be calculated as follows:

**NPV of Perpetuity = PV of perpetuity – initial investment**

or,

**NPV of Perpetuity = Cash flow / Discount Rate – initial investment**

## NPV of Perpetuity: Example 1

Suppose there’s a project idea that requires a $80,000 investment and it will generate a $20,000 yearly cash flow forever (in perpetuity). The discount rate is 10% for this project.

*So, here the PV of perpetuity = $20,000 / 10% = $20,000 / 0.10 = $200,000*

*Initial investment = $80,000*

*NPV of perpetuity = $200,000 – $80,000 = $120,000*

## NPV of Perpetuity: Example 2

Suppose there’s an investments scheme that requires a $200,000 initial investment today, and it will generate a $35,000 cash flow per year forever (in perpetuity). The discount rate is 8% for this investment.

*So, here the PV of perpetuity = $35,000 / 8% = $35,000 / 0.08 = $437,500*

*Initial investment = $200,000*

*NPV of perpetuity = $437,500 – $200,000 = $237,500*

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