The terminal value (TV) captures the value of a business beyond the projection period in a DCF analysis, and is the present value of all subsequent cash flows. Depending on the circumstance, the terminal value can constitute approximately 75% of the value in a 5-year DCF and 50% of the value in a 10-year DCF.

The Implied Terminal EBITDA Multiple is easy – divide the Terminal Value from the Perpetuity Growth Method by the Final Year EBITDA.

Terminal value is the value of a project’s expected cash flow beyond the explicit forecast horizon. An estimate of terminal value is critical in financial modelling as it accounts for a large percentage of the project value in a discounted cash flow valuation.

To determine the present value of the terminal value, one must discount its value at T0 by a factor equal to the number of years included in the initial projection period. If N is the 5th and final year in this period, then the Terminal Value is divided by (1 + k)5 (or WACC).

The terminal multiple is another method of calculating the terminal value. This method assumes that the enterprise value of the business can be calculated at the end of the projected period by using existing multiples on comparable companies.

Terminal values are the goals in life that are desirable states of existence. Examples of terminal values include family security, freedom, and equality. Examples of instrumental values include being honest, independent, intellectual, and logical.

Essentially, terminal value refers to the present value of all your business’s cash flows at a future point, assuming a stable rate of growth in perpetuity. It’s used for a broad range of financial metrics, but most prominently, terminal value is used to calculate discounted cash flow (DCF).

Typically, an asset’s terminal value is added to future cash flow projections and discounted to the present day. Discounting is performed because the terminal value is used to link the money value between two different points in time.

Terminal values are the goals that a person would like to achieve during his or her lifetime, while instrumental values are modes of behaviour in achieving the terminal values.

There are two commonly used methods to calculate terminal value: perpetual growth (Gordon Growth Model) and exit multiple. The former assumes that a business will continue to generate cash flows at a constant rate forever while the latter assumes that a business will be sold for a multiple of some market metric.

The multiples approach uses the approximate sales revenues of a company during the last year of a discounted cash flow model, then uses a multiple of that figure to arrive at the terminal value without further discounting applied. When Evaluating Terminal Value, Should I Use the Perpetuity Growth Model or the Exit Approach?

There are two approaches to the terminal value formula: (1) perpetual growth, and (2) exit multiple. Image: CFI’s Business Valuation Course. When building a Discounted Cash Flow / DCF model there are two major components: (1) the forecast period and (2) the terminal value.

There are 3 methods for terminal value calculation; they are as follows:- 1 Perpetuity Growth Method 2 Exit Multiple Growth Method 3 No Growth Perpetuity model

The terminal value formula using the exit multiple method is the most recent metric (i.e. sales, EBITDA, etc.) multiplied by the decided upon multiple (usually an average of recent exit multiples for other transactions).