You are using a dividend discount model to value a bank, which is expected to generate a 15% return on equity in perpetuity. The company paid dividends of$40 million on net income of $100 million in the most recent year and is expected to maintain high growth for the next 3 years, before settling into stable growth, growing 3% a year in perpetuity. If the cost of equity is 9%, estimate the terminal value at the end of year 3.

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To estimate the terminal value of the bank at the end of year 3 we c... View the full answer