Perpetuity Growth Method

What is the perpetuity growth method? Essentially, it is exactly what it says it is; continued growth into the future. Most people have difficulty assuming something is going to grow forever. But if you actually go through the calculation it makes sense. For example, let’s say you were valuing Ford Motor Company in 1930 and you are looking at the cash flows, it turns out that the company existed for a very long time and continues to do very well today. However, what most people do not realize that when you get out 15 or 20 years the net present value is almost 0. Meaning that those future years the net present value of those calculations is not that much money. The perpetuity method is accurate.