CAFI equity item sets
In CAFI equity item sets;
Stack questions Armishaw’s assumption in his 2014 valuation (Exhibit 2) that a perpetuity would best describe the terminal value of the stream and suggests that residual income should fade over time. Stack further suggests that a persistence factor of 0.50 might be appropriate.
Q. Using the information in Exhibit 2, comparing Armishaw’s approach to terminal value to Stack’s approach, Stack’s assumption leads to a 2024 value that is approximately:
- $6.50 lower than Armishaw’s approach.
- $6.74 lower than Armishaw’s approach.
- $26.30 higher than Armishaw’s approach.
A is correct.
Difference in VT
9.17 – 35.47 = –26.30
Stack’s vs. Armishaw’s assumptions
Difference in PV(VT)
–26.30/(1.1510) = –$6.50
Stack’s estimate will be $6.50 lower
My question is as follows, it is asking for the terminal value, so why would we discount the difference?
Failure will never overtake me if my determination to succeed is strong enough!