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

 

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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)² CF-8 = CFt-5(1+g)³ 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 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)² CF-8 = CFt-5(1+g)³ 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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