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Hi Paul,

Okay I must have misinterpreted your post. I agree with what you have just posted. I tend to set capex at around 110% to 120% of D&A for the terminal phase - it should be at least = to D&A. However you still count all capex although it indeed may be reduced or at least growth is reduced. It's tough to say well in advance that a company can actually reduce capex in the terminal phase as competition may require increased maintenance capex. In the case of young growth companies the higher growth period can be a lot longer than 5 or 10 years even up to 20 years. I would rather extend the high growth phase than tinker with the terminal phase.

The reason that we use such low terminal rates is because we expect the competitive advantage to be competed away and 3% approximates long term inflation. Arguably companies like Coke should have a higher terminal growth rate.

Best Regards
Philip
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