Stable Growth Rate for DCF Terminal Value
Came across this web page by Damodaran which highlighted some good points on the stable growth rate (link here):
- The stable growth rate cannot be greater than the overall growth rate of the economy, since if a firm grows forever at a rate higher than the growth rate of the economy, it will be bigger than the entire economy.
- Make sure you know whether you are choosing to use nominal growth rates or real growth rates.
- The stable growth rate can be negative.
