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Thread: Solution for Investments by BKM (Bodie, Kane, Marcus) ??

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    Solution for Investments by BKM (Bodie, Kane, Marcus) ??

    Hi friends,

    if anyone could please share the solution for the BKM book or ateast the answer key.

    Thanks,
    VC

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    Re: Solution for Investments by BKM (Bodie, Kane, Marcus) ??


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    Re: Solution for Investments by BKM (Bodie, Kane, Marcus) ??

    Hey Neetu,

    Many thanks.. its the thing that i was looking for....

    thanks again
    Varun

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    Re: Solution for Investments by BKM (Bodie, Kane, Marcus) ??

    Welcome Varun!


    If you find something better, please post it here.

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    Unhappy Doubts in Finance

    I was working on valuation of high growth companies.
    When I calculate the Terminal value, the formula used is:

    Final Cash Flow(1+g)/(k-g)

    where k = Discount Rate
    and g = Long-Term Cash Flow Growth Rate

    In my case, k = 8% and g is 10%, this generally doesn't happen and my valuation is -ve.

    I am not sure where I am making some mistake. Any ideas???

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    Re: Doubts in Corporate Finance

    I am not sure if your assumptions are right or not.
    Isn't a growth rate of 10% too high?

    I guess you can try verifying those rates... :?:

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    Re: Doubts in Corporate Finance

    Did you try to use comparable co.s method to see how much terminal value you get?

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    Re: Doubts in Corporate Finance

    Hi Ritesh,

    The formula that you are using comes from a sum of a Geometric Progression. If you go back to the derivation of this formula, the basic assumption is k>g.

    So, in your case the formula is not valid because k<g.

    - Sougata

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    Re: Doubts in Corporate Finance

    That was an interesting question and a good answer!

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    Re: Doubts in Corporate Finance

    Hi Neetu,
    Few things you should keep in mind while using that formula is that:
    For high growing companies you estimate the years for which the company will remain a high growth firm, and the stages in which it will finally taper down to the perpetual growth (which in most cases will be the GDP growth rate), the formula you have put in is only applicable for the perpetual growth case and not for high-growth years and hence "k" will be greater than "g".
    Let me know in case any thing else needs to be clarified.

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