Reading 27, Question 15 (Part A)

CFA Level II Equities
#1

Hi all,

I have a question regarding Reading 27 EOC Question 15 (PART A).
We are asked to estimate the value of the stock at the end of Year 4. When I look at the answer in the book, I see that they just calculated the Terminal Value and DID NOT add the Year 4 dividend with the Terminal Value to estimate the value.

For example, the answer in the book is $61.76, NOT ($61.76 +$1.80) $63.56.

Can anyone help me understand why it is the case?

Thanks.

#2

When you calculate the terminal value at year 4, the cash flows( or dividends) after year 4 are considered rather than cash flow( or dividend) at year 4. cash flow( or dividend) at year 4 is added when present value isestimated at year 0.