Consider a firm that expects to generate the following earnings stream over the next five years. The terminal value in Year 5 is based on a multiple of 15 times that year's earnings. Year 1 P50,000 Year 2 P60,000 Year 3 P65,000 Year 4 P70,000 Year 5 P750,000 (terminal value) Using a discount rate of 8%, what is the present value of the firm? What is the present value if the terminal value is based on 10 times Year 5 earnings?

Consider a firm that expects to generate the following earnings stream over the next five years. The terminal value in Year 5 is based on a multiple of 15 times that year's earnings. Year 1 P50,000 Year 2 P60,000 Year 3 P65,000 Year 4 P70,000 Year 5 P750,000 (terminal value) Using a discount rate of 8%, what is the present value of the firm? What is the present value if the terminal value is based on 10 times Year 5 earnings?

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter7: Valuation Of Stocks And Corporations

Section7.6: Valuing Nonconstant Growth Stocks

Problem 3ST

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