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See the attached Excel sheet and explain how Perpetual Growth of 2% was derived (it is marked in yellow).

Which formula was used to get 2%or can it be an estimate?

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Solution Summary

The solution provides a computation of Perpetual Growth in NPV analysis by employing the arithmetic mean.

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Discounted Cash Flow
Millions

Year 1 2 3 4 5 6 7 8 9
2002 2003 2004 2005 2006 2007 2008 2009 2010
EBIT 80 134 181 226 274 326 375 410 443
Tax 27 46 62 77 93 111 128 139 151
Earnings After Tax 53 88 119 149 181 215 248 271 292

Depreciation 18 26 36 45 54 65 75 83 90
Capital Expenditures 290 328 345 310 326 342 299 157 132
Change in Net working ...

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