When valuing a stock, an overestimated terminal growth rate can might not be noticed if the ____________ is also higher?
A) terminal cash flow
B) plowback ratio
C) discount rate
D) earnings

Question

Quizplus · Accepted Answer

An overestimated terminal growth rate might not be as noticeable if the discount rate is also higher because a higher discount rate reduces the present value of future cash flows, potentially offsetting the impact of an overly optimistic growth assumption.

When Valuing a Stock, an Overestimated Terminal Growth Rate Can