Re-Evaluation of 'Terminal Value, Accounting Numbers, and Inflation' by Gunther Friedl and Bernhard Schwetzler

14 Pages Posted: 12 Dec 2011

See all articles by Daniel Kiechle

Daniel Kiechle

University of Hohenheim

Niklas Lampenius

University of Hohenheim - Faculty of Business, Economics and Social Sciences

Date Written: December 11, 2011

Abstract

In recent issues of the Journal of Applied Corporate Finance Friedl and Schwetzler (2011) and Bradley and Jarrell (2008, 2011) voiced opposing views on the relation between the retention rate/plowback rate and the growth rate in the context of the constant growth valuation model when considering inflation. We find that the discussed models represent two different versions of the constant growth model with different underlying assumptions regarding the implied capital maintenance. Reviewing the models under a consistent set of assumptions we resolve the dispute and illustrate that both models result in identical growth rates and consequently in identical value estimates.

Keywords: Terminal Value, Constant Growth Model, Valuation, Inflation

Suggested Citation

Kiechle, Daniel and Lampenius, Niklas, Re-Evaluation of 'Terminal Value, Accounting Numbers, and Inflation' by Gunther Friedl and Bernhard Schwetzler (December 11, 2011). Available at SSRN: https://ssrn.com/abstract=1971028 or http://dx.doi.org/10.2139/ssrn.1971028

Daniel Kiechle (Contact Author)

University of Hohenheim ( email )

Fruwirthstr. 48
Stuttgart, 70599
Germany

Niklas Lampenius

University of Hohenheim - Faculty of Business, Economics and Social Sciences ( email )

Stuttgart, 70593
Germany

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