I don't know if this is the correct StackExchange community (it seems more related to personal finance than corporate finance), but I would greatly appreciate if someone could clarify to me this formula I found reading the excellent book "Valuation" by McKinsey and Company. At page 50 the cash flow perpetuity formula is presented:

Formula showing Value = (F C F_t=1) / ( W ACC - g)

and it's stated that for the derivation, the reader should see T. E. Copeland and J. Fred Weston, Financial Theory and Corporate Policy, 3rd ed., Appendix A. As I'm currently in a remote location in the countryside, I'm unable to gain access to this book through a library. Does someone know how the formula is derived? Thank you so much!

  • 2
    This formula is similar to the dividend discount model. Refer to the dividend discount model's derivation on Wikipedia: en.wikipedia.org/wiki/…
    – Flux
    Sep 23 '21 at 12:20
  • Thank you so much Flux! Sep 24 '21 at 7:30

Thanks to user Flux to help me find the answer. This formula is derived simply applying the limit for n -> ∞ to the present value of a sum from 1 to n of annuities with growing payments, for example when modeling the growing dividends payed out by a firm, assuming the rate of growth g is constant

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