Answer 10

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Read more on the stable growth rate

The only constraint on the stable growth rate is that it be less than the growth rate of the economy in which you operate. If you are working with nominal cashflows, this would be a nominal growth rate in the economy; with real growth rates, it would be a real growth rate for the economy. The growth rate can be 0% or negative. In fact, given what we know about firm life cycles where firms peak and then become smaller over time, you can argue that assuming a negative growth rate is more realistic than assuming that your firm will keep getting larger over time.


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