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Time-Value-of-Money and Amortization Worksheets 31
Because the term (1 + I/Y / 100)
-N
in the present value annuity equations
approaches zero as N increases, you can use these equations to solve for
the present value of a perpetual annuity:
• Perpetual ordinary annuity
• Perpetual annuity due
Example: Computing Present Value of Variable
Cash Flows
The ABC Company purchased a machine that will save these end-of-year
amounts:
Given a 10% discount rate, does the present value of the cash flows
exceed the original cost of $23,000?
Year
1234
Amount
$5000 $7000 $8000 $10000
PV
PMT
I/Y100
---------------------------
=
PV PMT
PMT
I/Y100
----------------------------
+=
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