Question

Use the following data to compute the present value of the terminal period ROPI for each of the four firms A through D. Assume a forecast horizon of four years. A B C D Terminal period ROPI $189,122 $27,878 $74,785 $105,733 Weighted average cost of capital (WACC) 7.9% 11.7% 9.5% 13.7% Terminal growth period rate 2.0% 1.0% 2.5% 2.0% Do not round until your final answers. Round your answers to the nearest whole number. A B C D PV of terminal period ROPI Answer 0 Answer 0 Answer 0 Answer 0

Answer 1

Firm A $ 2,412,150.68

Firm B $169,038.85

Firm C $761,699.81

Firm D $614,813.36

Step-by-step explanation:

The present value of terminal value is the terminal value multiplied by the discounted factor as shown by the formula below:

=ROPI*(1+growth rate)/(WACC-growth rate)*(1/(1+WACC)^n

n is the time horizon for the forecast

Firm A terminal value=$189,122*(1+2%)/(7.9%-2%)*1/(1+7.9%)^4

=3,269,566.78*0.737758499 =$ 2,412,150.68

Firm B terminal value=$27,878*(1+1%)/(11.7%-1%)*1/(1+11.7%)^4

=$ 263,147.48*0.642373043 =$169,038.85

Firm C terminal value=$74,785*(1+2.5%)/(9.5%-2.5%)*1/(1+9.5%)^4

=$ 1,095,066.07*0.695574293 =$761,699.81

Firm D terminal value=$105,733*(1+13.7%)/(13.7%-2%)*1/(1+13.7%)^4

=$ 1,027,507.87*0.598353921 =$614,813.36