Residual Income (from CFAI Qbank)
From the vignette, “Raman collects additional data for valuing PBRI using the multistage RI model. For this model, he assumes an annual growth rate of residual income of 15% during the forecast horizon of 5 years (Years 1 to 5) and discounts the terminal year’s residual income as a perpetuity.” The question asks for the discounted value of terminal RI in Year 5.
I am not sure what year to use to discount the terminal RI back to the present. PV of cont. RI in year T-1 = RI in year T/(1+r-w)
I thought T was 5, hence the discounting year of 4. But the answer discounted RI back 5 years. What am I missing here?
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