To calculate a terminal value, one divides the next period's cash flow by the:
A) constant discount rate plus a constant growth rate
B) constant discount rate plus a variable growth rate
C) constant discount rate minus a constant growth rate
D) constant growth rate minus constant discount rate
E) constant growth rate plus a variable discount rate

Question

Quizplus · Accepted Answer

The terminal value is calculated using the Gordon Growth Model, which divides the next period's cash flow by the constant discount rate minus the constant growth rate.

To Calculate a Terminal Value, One Divides the Next Period's