On your point 1 & 2
point 1)The discounted cash flow (DCF) of an investment of 100 with a 9% per annum discount rate over 40 years and a terminal value growth rate of 0% is approximately 1,103
point 2) we are valuing an assets residual value with 9% return basis (and not our return expectation ) .The way I think is Imagine buying a house which will give rent for 9% for 40 years after which the building will not last .Today that house we are buying at 1 cr ,in 40 years the rental of 9 lacs at todays price is 11 cr (hence gross block of 2490cr at todays price is 27400 cr ! ) .
What is the problem in the above view is? 40 years is too long period hence bring it down to 25 years .Lets be conservative and apply further probability to it (whatever we think ) ,still it would be higher than todays market cap .
Whats the risk ?no one can predict long term .Hence we need to keep on evaluating /calculating terminal value every 2-3 years
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