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q13. Youre trying to find a companys terminal value of assets based on a perpetuity...

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Finance

q13. Youre trying to find a companys terminal value of assets based on a perpetuity with growth, discounted by the weighted average cost of capital (WACC).

The companys home country is forecast to have 3% real GDP growth and 2% inflation for the foreseeable future. Which of the below statements is NOT correct? The companys terminal value perpetuity growth rate:

Select one:

a.

In nominal terms must be less than or equal to the countrys 1% approximate nominal GDP growth rate, or else the company will eventually take over the country.

b.

In real terms must be less than or equal to the countrys 3% real GDP growth rate, or else the company will eventually take over the country.

c.

Must be zero in real terms if the firms cash flows are forecast to grow by 2% in nominal terms.

d.

Must be less than the firms WACC, or else the perpetuity formula will give a negative price (though the company will be worth an infinite amount).

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