Empirical Analysis of Perpetuity Growth Rate Predictive Methods

The thesis is focused on the empirical verification of the functionality of selected commonly used models and methods for the prediction of terminal long-term growth rates used in perpetuity models. The objective of this thesis is to comprehensively evaluate the selected methods and recommend an approach for determining the long-term growth rate. A variety of tools have been used to accomplish these objectives, including basic statistical methods, graphical illustration and explanation of observed phenomena, and qualitative analysis. The introductory part of the thesis summarizes the theoretical foundations of the long-term growth rate estimation in perpetuity models and describes commonly used prediction methods. The thesis then proceeds with an empirical analysis of the prediction methods. The methods analyzed are regression analysis, long-run averages and an auxiliary ratio, adoption of an external forecast, and a test of Professor Damodaran's theorem. All analyses have been performed with emphasis on application in the Czech environment. The following section of the thesis summarizes the main results of the analyses and presents recommendations, both in terms of the application of each method and in terms of the approach for the underlying industry.