Equity Example 13 page 506


I had a quick question I was hoping someone might be able to help me with. I haven’t seen the terminal value calculated for residual income the same way as example 13 on page 506 with the CFAI books. They give us the terminal value price ( 68.40), but why do you need to subtract the computed equity value at the end?

Thanks in advance for your help!!

Our job is to discount the residual cashflows, so maybe that’s why?

Sorry, i’m not too sure about it.

Have a look at equation (6) on page 491 and you will understand why we subtract the book value of equity from the TV. (Premium over book value at the time of TV).