Exercise

Calculating Terminal Value

A firm is generally thought to have an infinite life, so although our FCFE projection only goes five years we have to come up with a method that lets us estimate the value of the FCFE beyond Year 5. The value of FCFE from Year 6 into perpetuity is called the "Terminal Value" and a common approach to estimate the Terminal Value is the Perpetuity with Growth Model, which we discussed in the video. The starting point of the Terminal Value calculation is the 2021 FCFE projection. The growth rate (g) of 3.4%, cost of equity (ke) of 10.5%, and the FCFE for 2021 from the prior exercise (fcfe_2021) are stored in memory.

Instructions

100 XP

Calculate terminal value as of 2021.

Take Hint (-30 XP)