66. ABC Company has projected the following cash flows:Year 1: 85,000Year 2: 105,000Year 3: 109,000Year 4: 115,000The analyst has determined an appropriate discount rate is 26% and the long-term growth rate is2%. What is the terminal value?a. 175,596b. 190,229c. 187,096d. 202,687

CF4 = 115,000Ke = 26%g = 2%Terminal value = CF4 x (1 + g) / (Ke - g) = 115000 x (1 + 2%) / (26% - 2%) = 117300 / 24% = $488,750PV of terminal value = Terminal value / (1 + Ke)n = 488750 / (1 + 26%)4 = 488750 / 2.520473 = $193,911.96The Terminal value = $488,750PV of Terminal value = $193,911.96The given options don't match. So the options are wrong.

Answered: 66. ABC Company has projected the…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

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66. ABC Company has projected the following cash flows: Year 1: 85,000 Year 2: 105,000 Year 3: 109,000 Year 4: 115,000 The analyst has determined an appropriate discount rate is 26% and the long-term growth rate is 2%. What is the terminal value? a. 175,596 b. 190,229 C. 187,096 d. 202,687