{
  "docId": "019de06f-28cb-7211-8997-56898cf5fd3f",
  "docSlug": "bfc2c26a8c29fb23775a386134299cd0",
  "documentTitle": "Bear Stearns | Investment Banking Pitch Book | 36 slides",
  "authorId": "bear-stearns",
  "authorName": "Bear Stearns",
  "documentKindSlug": "consulting-deck",
  "documentKindLabel": "Consulting deck",
  "sourceTypeSlug": "investment_bank",
  "sourceTypeLabel": "Investment bank",
  "presentationDate": "2005-01-01 00:00:00",
  "orientation": "landscape",
  "aspectRatio": 1.294673,
  "pageNumber": 28,
  "pageCount": 36,
  "prevPage": 27,
  "nextPage": 29,
  "slideType": "appendix_methodology",
  "function": "present_framework",
  "density": "dense",
  "nDataPoints": 0,
  "notes": "Includes specific formulas for Terminal Value and implied Perpetual Growth Rate.",
  "elementsJson": null,
  "metadataConfidence": 1,
  "imagePath": null,
  "slideHref": "/slides/019de06f-28cb-7211-8997-56898cf5fd3f/28",
  "deckHref": "/decks/019de06f-28cb-7211-8997-56898cf5fd3f",
  "deckJsonHref": "/decks/019de06f-28cb-7211-8997-56898cf5fd3f.json",
  "deckAnchorHref": "/decks/019de06f-28cb-7211-8997-56898cf5fd3f#slide-28",
  "components": [
    {
      "bbox": {
        "h": 0.15,
        "w": 0.8,
        "x": 0.09,
        "y": 0.47
      },
      "kind": "list",
      "text": "A practical limitation to the growing perpetuity formula is that it requires knowledge of the first free cash flow beyond the forecast horizon. If it is assumed that the free cash flow in the final year of the forecast horizon grows at the perpetual growth rate, then the growing perpetuity formula can be rewritten as follows: Perpetual Growth Rate = (TV * r) - FCF / (TV + FCF)",
      "attrs": null,
      "subkind": "bullet",
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "2ef5c923-9713-47b6-b967-29d8ffb7fae6",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": {
        "h": 0.05,
        "w": 0.8,
        "x": 0.09,
        "y": 0.75
      },
      "kind": "list",
      "text": "Above and beyond this, the user should normalize free cash flow for purposes of calculating the perpetual growth rate, such that D&A and CapEx are equal.",
      "attrs": null,
      "subkind": "bullet",
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "57eaff20-4f4e-43f0-99bd-fddc85d5ee0f",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": {
        "h": 0.05,
        "w": 0.8,
        "x": 0.09,
        "y": 0.67
      },
      "kind": "list",
      "text": "For modeling purposes, this rewritten formula allows the user to calculate the implied perpetual growth rate in a data table using the iterate function.",
      "attrs": null,
      "subkind": "bullet",
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "9d9462ac-dee5-4044-9779-daee87589a76",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": {
        "h": 0.1,
        "w": 0.8,
        "x": 0.09,
        "y": 0.32
      },
      "kind": "list",
      "text": "The formula for a growing perpetuity is: Terminal Value = X / (r - g)",
      "attrs": null,
      "subkind": "bullet",
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "e1a84b01-6a43-4d4e-99dc-bc492e028388",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": {
        "h": 0.05,
        "w": 0.8,
        "x": 0.09,
        "y": 0.23
      },
      "kind": "paragraph",
      "text": "The perpetuity growth method should be used to check the reasonableness of the exit multiple assumption for the terminal value.",
      "attrs": null,
      "subkind": "paragraph",
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "c9f72bc4-cf93-4071-bd4c-611357c69caa",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": {
        "h": 0.08,
        "w": 0.8,
        "x": 0.09,
        "y": 0.85
      },
      "kind": "source-note",
      "text": "(1) Source: Brealey & Myers, Principles of Corporate Finance, Sixth Edition. (2) Normalized free cash flow is calculated as EBIT plus Non-Deductible Goodwill Amortization less Adjusted Taxes less increase in Working Capital.",
      "attrs": null,
      "subkind": null,
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "930cf8fe-59a5-4ec1-ad1e-01e08959e18f",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": {
        "h": 0.03,
        "w": 0.6,
        "x": 0.09,
        "y": 0.17
      },
      "kind": "title",
      "text": "Calculating the Terminal Value—Perpetuity Growth Method",
      "attrs": null,
      "subkind": "headline",
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "6abcf9e5-8ea0-47eb-9a2e-30129547e69b",
      "frameworkName": null,
      "frameworkSlug": null
    }
  ],
  "metrics": [],
  "tools": [],
  "frameworks": [],
  "arcBeats": [
    {
      "to": 36,
      "from": 25,
      "beatId": "b469779c-88a0-43b8-af3d-b8dac2f148a3",
      "arcName": "The Consultant's Gambit",
      "arcSlug": "consultants-gambit",
      "beatName": "Impact & Next Steps",
      "beatSlug": "consultants-gambit-impact-next-steps",
      "evidence": "The document concludes with examples of DCF analysis and a weighted average cost of capital calculation, illustrating the impact and next steps.",
      "position": 3,
      "confidence": 0.8,
      "parentBeatName": "Resolution",
      "parentBeatSlug": "resolution"
    }
  ],
  "loops": [
    {
      "to": 28,
      "from": 24,
      "name": "Hypothesis Test",
      "slug": "42-hypothesis-test",
      "bestFor": "Strategy validation, due diligence, research presentations",
      "matchId": "5f28bbfa-1e61-48e1-b571-ef191a5fe9e2",
      "evidence": "The document presents methodologies for calculating terminal value and applying DCF to foreign investments, testing the hypothesis of DCF valuation.",
      "position": 1,
      "objective": "To test the hypothesis of DCF valuation",
      "structure": "The Hypothesis -> Test 1 (Supports/Refutes) -> Test 2 (Supports/Refutes) -> Conclusion (Validated/Pivoted)",
      "confidence": 0.6,
      "description": "State a hypothesis upfront, then systematically prove or disprove it with evidence"
    }
  ],
  "imagePathAlt": null,
  "thumbSrc": null,
  "thumbSrcAlt": null,
  "locked": true
}