Robert A. Bonavito, CPA PC

RABCPA PC Blog

Perpetuity Growth Method

What is the perpetuity growth method? Essentially, it is exactly what it says it is; continued growth into the future. Most people have difficulty assuming something is going to grow forever. But if you actually go through the calculation it makes sense. For example, let’s say you were valuing Ford Motor Company in 1930 and you are looking at the cash flows, it turns out that the company existed for a very long time and continues to do very well today. However, what most people do not realize that when you get out 15 or 20 years the net present value is almost 0. Meaning that those future years the net present value of those calculations is not that much money. The perpetuity method is accurate.

Posted October 10, 2018 by Robert A Bonavito in Business Valuations

23. Midyear Convention

What is a midyear convention?  In finance when we discount cash flows we assume that all the money is received at the end of the year, and discount it back.  Obviously, this has some questionable assumptions, mainly that all the money would be received at December 31st. In order to make the projections more realistic many times we will adopt a midyear convention. This assumes that we receive the cash flow evenly throughout the year. While this is not perfect it is more accurate than what is typically done in most cash flow calculations.

Posted September 28, 2018 by Robert A Bonavito in Business Damages

23. Midyear Convention

What is a midyear convention?  In finance when we discount cash flows we assume that all the money is received at the end of the year, and discount it back.  Obviously, this has some questionable assumptions, mainly that all the money would be received at December 31st. In order to make the projections more realistic many times we will adopt a midyear convention. This assumes that we receive the cash flow evenly throughout the year. While this is not perfect it is more accurate than what is typically done in most cash flow calculations.

Posted September 28, 2018 by Robert A Bonavito in Business Damages