Assumption / perpetuity growth (g)

How to pick the perpetuity growth rate

The perpetuity growth rate g is the single most-abused input in DCF terminal value. The defensible answer is short: long-run nominal GDP growth for the relevant economy, with a 3 to 4 percent ceiling for developed markets.

Direct answer

For a US business, use 2.0 to 2.5 percent nominal as the base case and 3.0 percent as the upper bound. For developed Europe, use 1.5 to 2.0 percent. For mature Japan, 1.0 to 1.5 percent. Above 3 to 4 percent the assumption implies the company permanently outgrows its host economy, which is mathematically incoherent over an infinite horizon. Always benchmark g against long-run nominal GDP from a primary source (IMF WEO or country-level central bank).

Anchors

Long-run nominal GDP growth as the ceiling

Illustrative anchors from publicly-available macro sources. Always pull the current figure from the cited source before relying on it.

Economy	Defensible g range	Why	Primary source
United States	2.0 to 3.0%	Long-run nominal GDP has trended in this range, combining ~2% real growth and ~2% inflation target.	IMF WEO April 2026; BEA Q1 2026 GDP first estimate
Developed Europe (EUR)	1.5 to 2.0%	Lower real-growth trajectory than the US; ECB 2% inflation target as upper anchor.	IMF WEO April 2026 (Euro area)
United Kingdom	1.5 to 2.5%	Lower trend real growth than US; BoE 2% inflation target.	IMF WEO April 2026 (United Kingdom)
Japan	1.0 to 1.5%	Demographic drag on real growth; multi-decade structural deflation only recently reversing.	IMF WEO April 2026 (Japan)
Emerging markets (basket)	3.0 to 5.0%	Higher real growth + higher inflation trend; country selection matters more than basket average.	IMF WEO April 2026 (Emerging market and developing economies)

Source: IMF World Economic Outlook, April 2026 release. Verify country-level long-run projection in current WEO publication before relying on a specific figure.Last verified June 2026.Ranges, not point estimates. Re-verify each cycle.

Errors to avoid

Three common ways g goes wrong

Setting g to a forecast-period growth rate

If the company is growing 12 percent in year 5 of the forecast, that is not the perpetuity rate. Perpetuity g is the steady-state growth AFTER the explicit-forecast period ends. By year 11 the business should be a mature steady-state operator.

Using a real g with a nominal WACC

The Gordon Growth formula needs consistent treatment of inflation. Nominal FCF + nominal g + nominal WACC, or real FCF + real g + real WACC. Mixing real and nominal inputs inflates terminal value.

Picking g to hit a target enterprise value

If the model is being reverse-engineered to defend a target price, picking g to make EV land where you want is reverse DCF, not valuation. Disclose the implied g and let the reviewer decide whether it is defensible.

Stress-test g in the calculator

The calculator lets you sweep g from 0 to 5 percent and shows the WACC - g spread live, with a warning when g exceeds 4 percent.

Open the calculator