Over a 5-year projected forecast, you find that a company's average annual growth rate of Unlevered Free Cash Flow is 15%.

Over a 5-year projected forecast, you find that a company's average annual growth rate of Unlevered Free Cash Flow is 15%. In a DCF analysis, should you use a 15% perpetual growth rate to calculate the Terminal Value under the Gordon Growth Method?

A.Yes. The Terminal Value rarely comprises a significant portion of the company's net present value, so you should not spend too much time determining the correct perpetual growth rate.

B.No. With a fast-growing company, you should only calculate the Terminal Value using the multiples method.

C.No. While future growth rates are difficult to predict, it is unreasonable to assume that a company can grow at a rate significantly higher than the overall economy forever, so a lower rate, closer to GDP growth or inflation, should be used.

D.No. It is likely that the company's growth will slow after the forecast period, so you should use a slightly lower growth rate, such as 10%.

E.Yes. Future growth rates are difficult to predict, and so historical results are the best estimate of future growth.