In a valuation of a nonconstant 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 explicit projection period. It assumes that the dividends continue to grow at a constant rate beyond the explicit projection period. Therefore, option C is the correct choice. Option A is incorrect because the present value of future dividends beyond the terminal value is not considered. Option B is incorrect because the maturity date of the stock is not relevant. Option D is incorrect because the terminal value is not necessarily the highest value that the stock will attain.

In a Valuation of a Nonconstant Dividend Growth Stock,the Terminal