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Help ( 10%) This question shows the terminal value discussed in lecture note 5 is very sensitive to small changes in parameters. Suppose we assume
Help ( 10%) This question shows the terminal value discussed in lecture note 5 is very sensitive to small changes in parameters. Suppose we assume that the cashflow estimates for t+6 and after are assumed to grow at a constant rate g. Thus, Cashflow estimates for t+6,t+7. are defined as follows: CFt+6=CFt+5(1+g)CFt+7=CFt+5(1+g)2CFt+8=CFt+5(1+g)3 Now suppose cashflow estimate for CFt+5 is 2,000,000 and the discount rate is 6% a) What is the terminal value evaluated at t+5 if g=2% 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 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 a)
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