One question asks for the difference between terminal values if you use perpetuity or its done through a discounted cash flow approach…When they just said terminal value difference I was assuming not to discount them back to present…does terminal value imply being discounted back to present?
Yeah, you have to discount the perpetual terminal value to compare it to the discounted CF approach (so you are comparing apples with apples). But I understand how some of these mock exams might not be so well worded.
when we come out with values… cash flows need to be discounted to todays values.
the benefit of the “terminal value” is instead of caluculating these forever, we come up a last (or terminal) value to add to our chain.