5 weestimateacostofcapitalof6.62%.(Wealso
droppedthemarginaltaxratedownto35%toreflect
expected changes in German tax law.)Weassumethatthestablegrowthratewillbe3.41%
(cappedattherisk-freerate)andthatthefirmwill
haveareturnoncapitalof6.62%(equaltothecostof
capital)instablegrowth.Thisallowsustoestimate
the reinvestment rate in stable growth.- During the transition period, we adjust growth,
reinvestmentrate,andthecostofcapitalfromhigh
growth levels to stable growth levels in linear
increments. The following table summarizes the
inputsandcashflowsforboththehigh growthand
transition period.
Finally,weestimatetheterminalvalue,basedonthegrowth
rate, cost of capital, and reinvestment rate estimated earlier.