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What the terminal value based on a perpetuity

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Question - Nomzamo Mabasa, an equity analyst, is considering an investment in Mzansiwood Production Company that specialises in producing South African films. Mabasa obtains the following information as of December 2020.

-Current price equals R84.

-Cost of equity equals R14.20.

-The firm is expected to exhibit a ROE of 20% over the next three years.

-The book value per share of Mzansiwood Limited is currently R100.

-Mzansiwood has a dividend payout ratio of 30%.

-Forecasted earnings in years one to three are equal to ROE multiplied by beginning book value.

-Assuming that after three years, continuing residual income falls to zero.

Required - What the terminal value based on a perpetuity of year three's residual income?

Reference no: EM133029303

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