Corporate Finance: Instructor\'s Manual Applied Corporate Finance

Aswath Damodaran 514

Choosing a Growth Period: Examples

Disney Aracruz Deutsche Bank

Firm Size/Market Size Firm is one of the largest players in the

entertainment and theme park

breudseinfinesisnegs t bhuemst theel (^) vbeuss inessand eexs (^) pare anding.
Firm has a small market share of the
paper/pulp business, but the business is
mature.
Firm has a significant market share of a
mature business.
Current Excess Returns Fcairpmita il,s aenadrn hiansg d (^) olenses soth faonr laitsst (^) fceost owf (^)
years
Roef ptuarpnes (^) ro/npu clpa ppitriacl aerse lbaurgt,e loyn a (^) avfuenrcagtioen, (^)
have been less than the cost of capital.
Flaigrmge (^) dh iatss cao (^) sret toufr enq (^) uoitny (^) ienq ureitcyen tht yatears ha. s
Competitive Advantages Hnaamse sso mine tohef (^) wtheo (^) rmldo.s Kt rneocwogs nmizoerde abbroanutd (^)
operating theme parks than any other
fsiturmd (^) ioin s (^) tthaef (^) fw. orld. Has skilled animation
CBroaszti (^) liaadnv anrataingfeosr (^) ebstesc.a uHsae (^) s oifn avcescteesds iton (^)
newer, updated plants and has skilled
workforce.
bHuassi^ naens^ se ding eG^ ienr^ tmhaen^ yco bmumt ethricsi aald^ bvaannktiangge^
is dissipating in the EU.
Length of High Growth period (^) c (^10) o (^) mypeaetirst,i (^) veen tiardevlya (^) nbteagcaeuss e (^) (owfh iitcsh s trhoavnge (^)
been wasted over the last few years) but
the excess returns are likely to be small.
(^5) ra ywe amras,te lriaargl. ely due to access to cheap (^) t (^5) o y peraer-sd,o mwonsttulyrn tole (^) valelolsw. firms to recover

I would not be inclined to use growth periods longer than 10 years. While there

are firms like IBM, Microsoft and Coca Cola which have been able to sustain

growth for much longer periods, they are more the exception than the rule. Most

firms are able to maintain high growth for shorter periods.

I am going to use firm valuation for Disney, because I expect leverage to

change, and firm valuation is simpler when that occurs

For Aracruz, I will use FCFE, since I do not expect leverage to change,

and do the analysis in real terms, to avoid having to deal with expected

inflation in BR

For Deutsche Bank, where it is difficult to estimate free cash flows, I will

use dividends and make the assumptions that dividends over time will be

equal to FCFE.