Anyone tried the Mendosa equity question set on the CFAI website? The answer they give for question #6 regarding terminal value appears to be wrong in my estimation.
I’m getting the same RI of $10.86 and the same terminal value of $87.58 they are, the difference is they are discounting the $87.58 back 5 years, whereas I’m discounting back 4 years. The reason why I discount it back 4 years, is because the continuing RI of $10.86 BEGINS in year 5, not after year 5. In other words, at the end of the growth period in year 4, they begin making RI of $10.86 forever. The way I’m doing it is how the Schweser notes instruct you to do it.
Can anyone confirm whether or not I’m doing this wrong?
I’m getting the same RI of $10.86 and the same terminal value of $87.58 they are, the difference is they are discounting the $87.58 back 5 years, whereas I’m discounting back 4 years. The reason why I discount it back 4 years, is because the continuing RI of $10.86 BEGINS in year 5, not after year 5. In other words, at the end of the growth period in year 4, they begin making RI of $10.86 forever. The way I’m doing it is how the Schweser notes instruct you to do it.
Can anyone confirm whether or not I’m doing this wrong?