Lakeisha was calculating the value of a potential acquisition of Plexxar Corporation that would permanently change the cash flows of her own company.  In doing her Discounted Cash Flow (DCF) Valuation, she knew she could only reliably forecast the cash flows of Plexxar for four (4) years.  In an attempt to capture the total value of the acquisition, she decided to calculate a so-called Terminal Value (growing perpetuity) for Years 5 and beyond that would account for all the years of potential cash flow after the final forecasted 4th year.  She knew the following:

4th (final) forecasted year cash flow ("C")	$2,520,000
Cost of Capital (Discount Rate "r")	10.0%
Perpetual growth rate ("g") of cash flows	2.0%

 

What was the PV of this Terminal Value?

Answer rating: 100% (QA)

The formula for calculating the present value of a growing perpetuity is PV C r ... View the full answer