Changes in the key assumptions underlying the estimation of a firm's terminal period valuation are likely to have
A) A disproportionately large impact on the firm's enterprise and equity values
B) A disproportionately small impact on the firm's enterprise and equity values
C) A disproportionately large impact on the firm's enterprise value but little impact on its equity value
D) A disproportionately large impact on the firm's equity value but little impact on its equity value
E) None of the above.

Question

Quizplus · Accepted Answer

Changes in the key assumptions underlying the estimation of a firm's terminal period valuation are likely to have a disproportionately large impact on the firm's enterprise and equity values. This is because the terminal value often accounts for a significant portion of the firm's total value, and small changes in the assumptions can lead to large changes in the estimated value. As a result, investors and analysts should pay close attention to the key assumptions used in estimating the terminal value, as they can have a significant impact on the overall valuation of the firm.

Changes in the Key Assumptions Underlying the Estimation of a Firm's