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Terminal Value Myth 2: As g approaches r, it is to Infinity and beyond!
Published 1 week ago
Description
Many analysts when they first see the perpetual growth model feel the call of Buzz Lightyear, since moving the growth rate towards the discount rate will make your terminal value explode before it implodes. In this session, I look at the constraints on growth in the terminal value equation and explain why I use the risk free rate as my cap on the growth rate.
Slides: http://www.stern.nyu.edu/~adamodar/pdfiles/blog/TermValyeMyth2.pdf
Blog Post: http://aswathdamodaran.blogspot.com/2016/11/myth-52-as-g-rto-infinity-and-beyond.html
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