Myth 5.4: Negative Growth Rates forever? Impossible!

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Myth 5.5: The Terminal Value ate my DCF!

When you complete a discounted cash flow valuation of a company with a growth window and a terminal value at the end, it is natural to consider how much of your value today comes from your terminal value but it is easy to interpret this number incorrectly. First, there is a...

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Myth 5.3: Growth is good, more growth is better!

The perils of holding all else constant in perpetual growth equations and playing with individual inputs, not only leads to the use of impossibly high growth rates but also inflates the importance of growth in the terminal value estimation. Growth is not free and it has to be...

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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...

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