What constraint applies to the perpetuity growth rate in a terminal value calculation?
- A It should not exceed long-run economic or inflation growth
- B It should exceed the discount rate
- C It must equal the historical growth rate
- D It must be zero
Answer
It should not exceed long-run economic or inflation growth
A growth rate above the discount rate produces a mathematically infinite value, and one above GDP growth implies the firm eventually becomes the economy.





