 # Quick Answer: What Is The Terminal Value In A DCF?

## How do you calculate DCF?

To find the terminal value, take the cash flow of the final year, multiply it by (1+ long-term growth rate in decimal form) and divide it by the discount rate minus the long-term growth rate in decimal form.

Finding the necessary information to complete a DCF analysis can be a lot of work..

## How do you discount terminal value in DCF?

Following are the general steps to be followed in valuation:Step 1: Free Cash Flow Calculation. First, we need to calculate Free Cash Flow to the Firm. … Step 2: Calculate WACC (Weighted Average Cost of Capital) Terminal value DCF. … Step 3: Estimate the Terminal Value Terminal value DCF. … Step 4: Discount FCFF.

## Do you discount the terminal value?

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).

## What is terminal growth rate in DCF?

The terminal growth rates typically range between the historical inflation rate (2%-3%) and the average GDP growth rate (3%-4%) at this stage. A terminal growth rate higher than the average GDP growth rate indicates that the company expects its growth to outperform that of the economy forever.

## Why do we calculate Terminal Value?

To capture the value at the end of the forecasting period, a terminal value is included. Terminal value allows for the inclusion of the value of future cash flows beyond a several year projection period, while satisfactorily mitigating many of the problems of valuing such project cash flows.

## How do you calculate DCF value?

The following steps are required to arrive at a DCF valuation:Project unlevered FCFs (UFCFs)Choose a discount rate.Calculate the TV.Calculate the enterprise value (EV) by discounting the projected UFCFs and TV to net present value.Calculate the equity value by subtracting net debt from EV.Review the results.