What would be the terminal values of the dividends from IWPI-Spain if they were expected to grow in real terms at 1% rather than 0%?
What will be an ideal response?
If dividends are assumed to grow at 3%, 2% inflation plus 1% real, the terminal value of dividends would be €102.26 million, an increase from €90.15 million. IWPI might be able to grow in real terms if its replacement capital is more productive than its existing capital. Otherwise, IWPI will have to invest in additional plant and equipment and there would be less free cash flow to distribute as dividends.
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Indicate whether the statement is true or false