In my last post, I started off by providing a rationale for a terminal value and presented alternatives to the perpetual growth model. That said, most DCFs are built with the the perpetual growth equation, setting up for a potential valuation disaster. Mathematically, the denominator is a powder keg waiting to blow, since as you increase g, holding the cash flow and r constant, your value will approach infinity before turning negative, leading to what I call
Myth 5.2: As g-> r...To Infinity and Beyond!
Myth 5.2: As g-> r...To Infinity and Beyond!
Myth 5.2: As g-> r...To Infinity and Beyond!
In my last post, I started off by providing a rationale for a terminal value and presented alternatives to the perpetual growth model. That said, most DCFs are built with the the perpetual growth equation, setting up for a potential valuation disaster. Mathematically, the denominator is a powder keg waiting to blow, since as you increase g, holding the cash flow and r constant, your value will approach infinity before turning negative, leading to what I call