When estimating the terminal value of a cash flow perpetuity, which of the following is not a component?
A)the next period's cash flow
B)a constant discount rate
C)a constant growth rate
D)the payback period

Question

Quizplus · Accepted Answer

The payback period is not a component when estimating the terminal value of a cash flow perpetuity. The terminal value is calculated as the cash flow for the final period divided by the difference between the discount rate and the growth rate. The next period's cash flow, constant discount rate, and constant growth rate are all necessary components for this calculation.

When Estimating the Terminal Value of a Cash Flow Perpetuity