CHAPTER 3

Determining the Long-Term Growth Rate

Valuation of a company requires the use of both intermediate-term growth rates for growth for the next five years. However, long-term growth rates should approximate the long-term growth rates of the economy as a whole. Figure 3.1 shows the process needed to compute the long-term growth rate of Coca-Cola based on GDP. It is not possible for the sales of a company to grow at a higher rate than the average growth rate of the economy forever. Large, mature companies will grow at the average growth rate of GDP eventually.

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Figure 3.1 Shows the process used to compute the long-term growth rate of Coca-Cola ...

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