Question

Following up from above, it is obvious to even the least financially savvy person that the cash flows from General Electric have not remained constant over the last 125 years, and they are not likely to do so in the future. How could a growing annuity be used to value a corporation that has growth opportunities?

Answer 1

The growth rate of General electric has not been constant in the past years and it is not expected to be constant in the future years so it can be managed by assigning a different growth rate by having periodic segmentation.

General electric has always been a company which has shown tremendous growth past few years and it has been one of the oldest company of the United States, so the growth rate has been highly fluctuating because of the various life cycle stages of the company as it has a very high growth rate during its growth stage of product life cycle,and the growth rate had continued to go up during the overall growth cycle but started to remain constant during the maturity cycle and now when the company is into its declining page the growth rate is continuously decreasing, so this will gather pace once the company will become more old and one should be using the growth rate which is segregated in different parts because and there is no constant growth rate of these companies and their should always be assigning of a default rate, because the probability of default on valuation of this company can be higher so these factors need to be embedded into the overall valuation analysis, when it is being done by an analyst.