We introduced in class the terminal value formula and explained that it makes more sense to assume a constant long-term growth and long-term discount rate for horizons above 5 -years. For your convenience, we restate the formula here, but we make it shorter by assuming that the long-term growth and discount are reached after 2 years. This is a valid assumption and should not throw you off.   V = CF1/(1+r_st) +  CF2/(1+r_st)^2 + 1/(1+r_st)^2  * CF3/(r_LT- g_LT). Which statement below is correct?Single choice

A

The equation is correct.

B

The equation is incorrect as the CF3 is discounted twice (once with r_st and once with r_LT).

C

The equation is incorrect as we forgot to discount CF1 and CF2 by “g_st”.

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