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Part(a)
Depreciation which has been added not deducted at the end ,when
arriving at the free cashflow to equity.Part(b)
i was assuming the growth after 3rd year i.e 4th year to infinity
but it has been stated as terminal value as growth in 3rd year itself ?Part (a). I don’t know what your question is. Depreciation has been added because it is not a cash flow. There is no reason why it should be deducted at the end.
Part (b). The dividend valuation formula (which is what has been used) gives a PV at time 0 if the first flow is in 1 years time. Since the first flow is in 4 years time, which is 3 years later than in 1 years time, it gives a PV 3 years later as well i.e. at time 3 instead of at time 0.
I explain all this in my lectures!i will stick to your technique which i have learnt during the course , some bbp answers really confuses me such as above.
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