Question: The terminal value is very sensitive to small changes in parameters. Suppose that the cashflow estimates for t+6 and after are assumed to grow

The terminal value is very sensitive to small changes in parameters. Suppose that the cashflow estimates for

The terminal value is very sensitive to small changes in parameters. Suppose that the cashflow estimates for t+6 and after are assumed to grow at a constant rate g. Thus, cashflow estimates for t= t+6, t+7... are defined as follows: CF-6 = CFt-5(1+g) CF-7 = CF-5(1+g) CF-8 = CFt-5(1+g) Let the cashflow estimate for CF-s be 2,000,000 and the discount rate be 6%. Answer the following questions. a) What is the terminal value evaluated at t+5 if g=2%? b) What is the terminal value evaluated at t+5 if g=3%. How much larger is this value in percent than the value obtained in part a? c) What is the terminal value evaluated at t+5 if g=3% as before but the discount rate is reduced to 5%? How much larger is this value in percent than the value obtained in part a

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