4 THE RISK PREMIUM FACTOR and future earnings--growth; but the more distant the earnings, the less value today. How far in the future do we discount the earnings? In perpetuity--in other words, forever. Of course, the company could be sold in the next few years, but since the sale price is based on projected cash flow, the valuation at time of sale will still be based on perpetuity cash flows. As you will see, projecting future earnings into perpetuity does not require a spreadsheet with an infinite number of columns. VALUING A PERPETUITY If I promise to pay you $5 per year forever, what is that worth today? If we assume C is still 5 percent, then the payment at the end of the first year is worth $5/(1 + 0.05) and the second $5/(1 + 0.05) 2 and so on. Table 1.1 shows the discount factors and present value for select future years. The PV in any year is the payment divided by the discount factor. The PV of the perpetuity is the sum of the PVs for each year out to infinity. The good news is that in order to calculate a perpetuity, you don't need to forecast cash flows forever. Assuming a constant discount rate and cash