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Undervaluation or overvaluation of the firm

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When forecasting future margins for companies, we often assume an "L-curve" for margins (where margins gradually go from their current level to a stable long-term level). Give an example where this rule of thumb is inappropriate and explain why this is the case. Would using this rule of thumb lead to an undervaluation or overvaluation of the firm?

Reference no: EM133306348

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