To calculate a terminal value, one divides the next period's cash flow by the spread between the __________ discount rate and __________ growth rate.
A)variable; constant
B)constant; variable
C)constant; constant
D)variable; variable

Question

Quizplus · Accepted Answer

The terminal value is calculated by dividing the next period's cash flow by the spread between the constant discount rate and constant growth rate. This is because in most valuation models, it is assumed that beyond a certain point, the growth rate of cash flows and the discount rate will remain constant to simplify the calculation of the terminal value.

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