Two figures in, a clear answer out. The perpetuity calculator uses discount rate, dividend and growth rate to produce present value, applying the standard relationship for this problem in the order the calculation actually needs it.
What Is the Perpetuity Calculator?
The perpetuity calculator takes discount rate, dividend and growth rate and turns them into present value.
It is the kind of calculation you would otherwise do on the back of an envelope: mechanical, repeatable and easy to get subtly wrong without noticing.
How the Perpetuity Figure Is Built
Each result is calculated from the ones before it, so the working is fully visible. That matters when the answer is going to be quoted to somebody else and you need to be able to explain where it came from.
The figures are exactly as good as the assumptions underneath them. Check the rates, the periods and the tax treatment before you rely on the result.
Reading the Result Sensibly
A small change in an input can move the result by much more than you would expect, particularly where the calculation divides by one of the figures you supplied. That is worth understanding before you rely on a figure.
For anything that will be committed to, write the inputs down beside the result. A number you can reproduce is worth far more than one you cannot explain.
A Worked Example
Working through an example, with discount rate set to 10, dividend set to 5, growth rate set to 2, the calculator returns present value of 62.5. Substitute your own figures and the same steps produce the same kind of answer.
Frequently Asked Questions
What do I need to work out present value?
Enter discount rate, dividend and growth rate. The calculator then works through the relationship and reports present value.
What does the perpetuity actually calculate?
It takes discount rate, dividend and growth rate and converts them into present value using the standard relationship for this problem. Each step is applied in turn, so every output is traceable back to the numbers you typed in.
How should I enter discount rate?
Use the value you actually have, in the unit shown next to the field. Enter every value in the same unit system. The calculator assumes the figures you supply are consistent, so it cannot correct a mistake that happens before the calculation starts.
Why does a small change in one value move the answer so much?
That happens when an output depends on a ratio, because dividing by a small number magnifies any change in it. Check the units first, then check whether the value you entered is in the range the relationship was designed for.
Is the answer exact?
It is as exact as the formula and the inputs allow. The method itself is the standard one for this problem, so the only sources of error are the figures you enter and the precision you ask for.