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system
which r in perpetuity formula to pricing a business?
user
in the equity markets, the p/e is usually somewhere around 15.  the p/e can be viewed as the inverse of the rate of a perpetuity. since the average is 15, and the e/p of that would be 6.7%, r should be 6.7% on average. if your business is growing, the growth rate can be incorporated like so: as you can see, a high g would make the price negative, in essence the seller should actually pay someone to take the business, but in reality, r is determined from the p and an estimated g. for a business of any growth rate, it's best to compare the multiple to the market, so for the average business in the market with your business's growth rate and industry, that p/e would be best applied to your company's income.
assistant