What range is typically used for determining the long-term growth rate in the perpetuity approach?

The range typically used for determining the long-term growth rate in the perpetuity approach is generally considered to be between 1% and 3%. This range is aligned with historical economic growth rates, taking into account factors such as inflation and the overall growth of the economy.

Using this range allows analysts to estimate a sustainable growth rate that reflects conservative projections for a company's earnings or cash flows over an extended period. The rationale is that the long-term growth rate should not exceed the growth of the overall economy in a mature phase, and rates above this range may be overly optimistic and unrealistic given economic conditions.

In contrast, lower ranges like 0% to 1% may fail to capture potential growth, while higher ranges could lead to inflated valuations that do not account for economic realities and may mislead stakeholders about the company's future performance. Thus, the selection of 1% to 3% is rooted in a cautious and balanced approach to financial forecasting.