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FINS3641 SAV Week 4: Estimating Growth and Terminal Value21 iv)It is prudent to set the stable growth rate close to (and not exceeding) the growth rateof the economyStable growth firms should earn close to 0 excess returns, i.e., ROE ≈ke& ROC ≈kc. Changes in stable growth may not have any impact on firm value as the firm will need to a higher reinvestment rate to sustain the higher growth: FCFF: TVn=శሺି ሻሺି ሻ – = శሺି ሻሺି ሻ – ൈ= శሺି ሻሺି ሻ – ൈ = శሺି ሻሺି ሻ ሺି ሻHowever if the firm’s ROE > (<) ke or ROC > (<) kc. the terminal value will increase (decrease) as the growth rate increases.