According to the textbook model, under conditions of nonconstant growth, the dis¬count rate utilized to find the present value of the expected cash flows will be the same for the initial growth period as for the normal growth period.

Question

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The discount rate used to find the present value of the expected cash flows will be the same for both the initial growth period and the normal growth period under conditions of nonconstant growth, according to the textbook model. This is because the discount rate is determined by the required rate of return, which is assumed to be constant over the entire investment horizon.

According to the Textbook Model, Under Conditions of Nonconstant Growth