In a valuation of a non-constant dividend growth stock, the terminal value represents the:
A)Point at which the present value of future dividends equals zero
B)Maturity date of the stock
C)Present value of future dividends from that point on
D)Highest value that the stock will attain

Question

Quizplus · Accepted Answer

The terminal value represents the present value of all future dividends beyond the projection period. This assumes that the dividend growth rate will remain constant after the projection period, leading to a perpetuity of dividends that can be modeled using the formula for perpetuity. Therefore, the terminal value represents the present value of all future dividends from that point on.

In a Valuation of a Non-Constant Dividend Growth Stock, the Terminal