Explain how a change from 2% to 3% in the terminal growth rate in a DCF has a significant impact on the calculation of the fair equity value.

increase in the terminal growth rate will be increasing the overall cash flows which will be impacting the overall future cash flows of the company and it will be helpful in higher present value of the company because when the growth rate will be higher, it will reflect that the company has been able to generate higher rate of cash flows and it will be leading to higher net present value of the project as well.

The growth rate can be having a magnifying effect and it will be helping in higher degree of rate of return generation for the individual because the rate of return can be multiplied and it will be enhancing the overall future flows of the company, so there will be a ripple effect on the positive side because of the increase of the terminal growth rate of the company.

HENCE, It can be said that the fair equity value will be increasing due to increase in the growth rate of the company.