{"id":5917,"date":"2022-06-20T18:10:48","date_gmt":"2022-06-20T16:10:48","guid":{"rendered":"https:\/\/www.consultingcheck.com\/topics\/calculating-perpetual-annuity\/5917"},"modified":"2023-09-11T14:37:30","modified_gmt":"2023-09-11T12:37:30","slug":"calculating-perpetual-annuity","status":"publish","type":"jask_topic","link":"https:\/\/www.consultingcheck.com\/en\/topics\/calculating-perpetual-annuity\/5917\/","title":{"rendered":"Calculate the perpetual annuity to determine the value of the company"},"content":{"rendered":"\n<h2 class=\"wp-block-heading\">What is the perpetual annuity?<\/h2>\n\n\n\n<p>Because it is not possible to plan each fiscal year individually in the more distant future, the first three to five years are planned realistically in detail and a so-called &#8220;perpetual annuity&#8221; is applied as a lump sum for the period thereafter, which is derived conclusively from the planning. This perpetuity must be discounted because it is paid out at times that lie in the future.<\/p>\n\n\n\n<p><a class=\"topic-link\" href=\"https:\/\/www.consultingcheck.com\/en\/topics\/calculating-the-capitalized-earnings-value\/5918\/\" title=\"Ermittlung des Ertragswertes\">The income value<\/a> results from the addition of the discounted planned income and the discounted perpetuity.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Formulas for calculating the perpetual annuity<\/h2>\n\n\n\n<p>The perpetuity is equal to the long-term expected return divided by the long-term expected interest rate. If a rising risk-free base interest rate is assumed, this base interest rate must be included in the interest rate used to discount the perpetual annuity. If a higher market and\/or company risk is assumed, these risks must be reflected in the risk-adequate interest rate.<\/p>\n\n\n\n<p class=\"is-style-example\">Example: A company is expected to generate long-term income of EUR 100 thousand per year. If it is assumed that the base interest rate will be at a level of 5% and that the market risk will be reflected with a discount of 4% and that the company risk will correspond to 1.5 times the market risk, then the interest rate for discounting the perpetuity is 5% + 4% + 6% = 15%.<\/p>\n\n\n\n<p class=\"is-style-example\">In this case, the perpetual annuity today is worth EUR 100 thousand\/0.15 x (1+0.15)^-6 = EUR 667 thousand x 0.43 = EUR 288 thousand.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">This is the role of the perpetual annuity for the company valuation<\/h2>\n\n\n\n<p>The perpetual annuity has a significant influence on the company value. The greater the confidence in the long-term, sustainable profitability of a company, the higher the perpetual annuity as a key component of the capitalized earnings value.<\/p>\n\n\n\n<p>In turn, the capitalized earnings value is a key factor in calculating the value of a company. It is therefore worthwhile to position companies in a demonstrably resilient manner.<\/p>\n","protected":false},"featured_media":0,"parent":5911,"menu_order":37800,"template":"","meta":{"_links_to":"","_links_to_target":""},"jask_topic_categories":[1036],"class_list":["post-5917","jask_topic","type-jask_topic","status-publish","hentry","jask_topic_categories-ermittlung-der-ewigen-rente-en"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.5 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>How to determine the perpetuity- consultingcheck<\/title>\n<meta name=\"description\" content=\"Periods exceeding 5 years are recognised by companies as a so-called &quot;perpetual annuity&quot;. 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