foronlythreeyears?Whatifitcouldkeephighgrowthgoing
for eight years? Table 8.7 summarizes the impact of
lengthening the growth period of each of the equity multiples.
TABLE 8.7Length of Growth Period and Equity Multiples
Theeffectsarepredictable.Ifthefirmisabletosustainhigh
growth for longer,all ofthe equity multipleswill register
higher values. In Chapter 4, we argued that the key
determinant of the length of the growth period was the
competitive position of the firm; the larger and more
sustainableitscompetitiveadvantages,thelongerthegrowth
period, we argued. This table suggests that, other things
remainingequal,firmsinstrongercompetitivepositionswill
tradeathighermultiples,foranygivenexpectedgrowthrate,
than firms with weaker competitive positions.
Risk Effect
Riskenterstheequationthroughthecostofequity.Whilewe
usebetaasourmeasureofequityrisk,thelogicofhigherrisk
increasingthecostofequitywillapplynomatterwhatrisk
andreturnmodelwechoosetouse.Holdingothervariables