Terminal growth
The perpetual growth rate assumed in the Gordon-growth terminal-value calculation. Capped below long-run nominal GDP (typically 2.5–3.0% for developed-market firms).
g_terminal ≤ Long-run nominal GDP growth (typically 2.5–3.0%)Terminal growth is the perpetuity growth rate plugged into the Gordon-growth terminal-value formula. It must be below the discount rate (or the math diverges) and must be below long-run nominal GDP growth (or the company eventually exceeds the size of the economy, which cannot happen). Our convention caps terminal growth at 2.5–3.0% for developed-market businesses, with downward adjustments for archetypes whose terminal economics will be structurally weaker (declining-industry incumbents, mature commodity producers). Terminal growth is the single highest-leverage assumption in any DCF: a 50-basis-point change in g moves the terminal-value formula's denominator by roughly 5%, which compounds through the present-value calculation into a 3-5% change in fair value. We always present terminal-growth sensitivity in our 5×5 grid centered on the company's calculated cost of equity, with terminal growth on the y-axis. The grid surfaces where the assumption stops being defensible.