MGMT 304 - Terminal Value

Homework 4 part 2

1. The purpose of this assignment is to show the importance of the terminal value, and the assumptions used in its calculation, in discounted cash flow valuation.

Refer back to question 8 in "homework 4" from connect, where you calculated the current share price of a stock, and perform the following analysis:

Calculate the terminal value, and report what percentage of the current share price it represents.

The required return and growth rate are both very important components of these calculations.Calculate the current share price in question 8 with different values of r and g.Use (+) and (-) 1% with intervals of 0.5% for r and g to display a table that shows how sensitive the share price is to these variables.

For instance, if your g = 4%, use 3%, 3.5%, 4%, 4.5%, and 5%, and if your r = 12%, use 11%, 11.5%, 12%, 12.5%, and 13%.(I would recommend using excel for your stock valuation to save time when changing the values.I have included an excel template, where you can input your dividends, r, and g into the yellow cells to calculate

Please show the formula and the process of the calculation