IDEAS home Printed from https://ideas.repec.org/p/col/000463/004735.html
   My bibliography  Save this paper

Return to fundamentals: perpetuities, common wisdom and the use of the gordon constant growth model

Author

Listed:
  • Ignacio Velez-Pareja

Abstract

In this work we explain the proper use of perpetuities and the value of them. We consider two cases: calculating the value on period zero when the perpetuity starts with a given cash flow in period 1 and when it starts from a cash flow in period zero and it grows in period 1 at a given rate (as when we calculate a terminal or continuing value). We derive the proper expressions for the two cases. In particular we focus the analysis when there is no real growth and expected inflation is positive. We conclude that depending on which is the case we can use or not the Constant Growth Model (Gordon Model).

Suggested Citation

  • Ignacio Velez-Pareja, 2008. "Return to fundamentals: perpetuities, common wisdom and the use of the gordon constant growth model," Proyecciones Financieras y Valoración 4735, Master Consultores.
    • Handle: RePEc:col:000463:004735
    as

    Download full text from publisher

    File URL: http://papers.ssrn.com/abstract=1149525
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    WACC; CGM; constant growth model; gordon model; perpetuities; terminal value; tax savings;
    All these keywords.

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:col:000463:004735. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ignacio Velez (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.