Perpetuity Formula

The perpetuity formula is a mathematical equation used to calculate the present value of an infinite series of future cash flows. It is the core of the Gordon Growth Model, defined as the cash flow for the next period divided by the discount rate minus the growth rate.

In financial modeling, it is used to determine the terminal value of a business or protocol. Because it assumes infinite growth, it is extremely sensitive to the input variables.

A small change in the growth rate can lead to a large change in the terminal value. It is a powerful tool for long-term valuation but requires careful selection of assumptions to avoid unrealistic outcomes.