Question
In: Finance
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 2 years agoRelated Solutions
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