Assume that it is December 31, 2017 and that ABC Company pays dividends once per
ID: 2802229 • Letter: A
Question
Assume that it is December 31, 2017 and that ABC Company pays dividends once per year on the last day of the year. Below, I have presented the annual dividend forecast for ABC. You also have the cost of equity and the terminal value perpetuity growth rate.
2017 2018 2019 2020 2021
Dividend Per Share 1.75 2.00 2.25 2.50 3.00
Cost of Equity 12%
TV Perp Growth Rate 3%
What is the value of the terminal value perpetuity in 12/31/2017 dollars on a per share basis?
Explanation / Answer
Value in 2021=Dividend in 2021× (1+growth)/required return-growth rate
Value in 2021=3×1.03/ (.12-.03)
Value in 2021= 34.333
Value in 2017 31st Dec=34.333/1.12^4
Value in 2017 31st Dec=34.333/1.12^4
Value in 2017 31st Dec=21.82
Terminal value=21.82