Estimate the terminal value at t is five for the firm

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Problem 1: A firm currently earns $80 million in earnings before interest and taxes. You expect the firm's earnings to grow 20 percent a year for the next five years and 5% thereafter. The firm's current after-tax return on capital is 40%, but you expect it to be halved six years from now. If the cost of capital for the firm is expected to be 10% in perpetuity, estimate the terminal value (at t=5) for the firm. (The tax rate for the firm is 40%.).

Pick the closest answer.

a. 1,612.43

b. 1,881.15

c. 1,720.58

d. 1954.45

Reference no: EM132932439

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