Can someone explain this problem to me ? I don’t get how its not 120 (B) because I thought when you calculate supernormal rate you are suppose to use Dn+1 / k-g for terminal value which means we will be using D4 in terminal value calculation ? I am a little confused with this question because it ended at D2 for some reason. Thanks in advance
From year 3 onwards you have a perpetuity of $4.71 growing at 9%. The terminal value of that in year 2 is $156.96 by using D(2+1)/(r-g). You dont use D4 since the TV is calculated at end of year 2 and not year 3.
so for supernormal rate calculations we TV would be the year where the supernormal growth ends ?
thanx so much for clearing this up for me