Computing Present Value of Terminal Residual Operating Income Use the following data to compute the present...

Computing Present Value of Terminal Residual Operating Income

Use the following data to compute the present value of the terminal period ROPI for each of the four firms A through D. Assume a forecast horizon of four years.

	A	B	C	D
Terminal period ROPI	$208,011	$46,767	$93,674	$124,622
Weighted average cost of capital (WACC)	8.1%	11.9%	9.7%	13.9%
Terminal growth period rate	2.0%	1.0%	2.5%	2.0%

Do not round until your final answers. Round your answers to the nearest whole number.

			A	B	C	D
PV of terminal period ROPI			$Answer	$Answer	$Answer	$Answer

Solutions

Expert Solution

Project A	Year 1	Year 2	Year 3	Year 4
Cash flow	208011	212171.2	216414.6	220742.9
[email protected]%	0.925069	0.855753	0.791631	0.732314
PV	192424.6	181566.2	171320.6	161653.1

Total		706964.5

PV of terminal ROPI		706964.5

ProjectB	Year 1	Year 2	Year 3	Year 4
Cash flow	46767	47234.67	47707.02	48184.09
[email protected]%	0.893655	0.798619	0.71369	0.637793
PV	41793.57	37722.52	34048.03	30731.47

Total		144295.6

PV of terminal ROPI		144295.6

Project C	Year 1	Year 2	Year 3	Year 4
Cash flow	93674	96015.85	98416.25	100876.7
[email protected]%	0.911577	0.830973	0.757496	0.690516
PV	85391.07	79786.55	74549.87	69656.9

Total		309384.4

PV of terminal ROPI		309384.4

Project D	Year 1	Year 2	Year 3	Year 4
Cash flow	124622	127114.4	129656.7	132249.9
[email protected]%	0.877963	0.770819	0.676751	0.594162
PV	109413.5	97982.26	87745.31	78577.89

Total		373719

PV of terminal ROPI		373719

jeff jeffy answered 1 year ago

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