Why is the stable-growth model best for valuing firms that ‘have capital expenditures that are not significantly higher than depreciation’…is is just that this implies they aren’t in some massive capex/growth expansion if their capex are not significatly higher than depriaction- they are just replacing their machines and going about their business?
The implication of CapEx _ equalling _ depreciation is that you’re replacing your PP&E at the same rate that it’s wearing out: no growth, no shrinkage.
If CapEx is slightly above depreciation, you’re growing, but slowly; if CapEx is slightly below depreciation, you’re shrinking, but slowly. And so on.