Company valuation - Discounted Cashflow Analysis (DCF) - Terminal Value

5 important questions on Company valuation - Discounted Cashflow Analysis (DCF) - Terminal Value

What is the terminal value of a company in a DCF analysis?

The value that is attached to an asset after a specific forecasting period.

What is the formula of TV?

Last FCF / (WACC - terminal growth rate)

What terminal growth rate is typically seen as aggressive?

A growth rate above 2.0-2.5%. It can inflate the outcome of the DCF substantially, undermining the creditability of a DCF analysis.
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As a rule of thumb, what happens when more than 60-70% of the total value of a company is the terminal value (cash flow that is ten years away)?

The outcome of the DCF is seen as exaggerated and inflated by many professional investors.

A terminal growth rate should be equal or similar to conservative, normal GDP growth rate. What is that rate?

2.0-2.5%

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