What is the terminal value?
Enter the last year of your forecast and either a growth rate that lasts forever or the multiple a buyer would pay. The calculator gives the terminal value at the end of the forecast and its present value today, the part of a discounted cash flow (DCF) valuation that covers every year after the forecast.
- Terminal value (in year n)
- $15,769,230.77
At a 9% discount rate, the terminal value is $15,769,230.77, worth $10,248,918.01 today.
- Present value of the terminal value
- $10,248,918.01
- Cash flow in year n + 1
- $1,025,000.00
- Implied multiple of the final cash flow
- 15.77
Terminal value (in year n): $15,769,230.77. At a 9% discount rate, the terminal value is $15,769,230.77, worth $10,248,918.01 today.
The results are estimates for information only. They are not financial, tax, or legal advice. Check the numbers with your lender or a qualified professional before you decide. Terms of use
How to calculate
Computes the terminal value of a discounted cash flow (DCF) forecast by the Gordon growth (perpetuity growth) model or an exit multiple, and its present value today.
Example with the default inputs (Method Perpetual growth (Gordon), Cash flow in the final forecast year $1,000,000.00, Perpetual growth rate 2.5%, Discount rate 9%, Years to the final forecast year (n) 5): At a 9% discount rate, the terminal value is $15,769,230.77, worth $10,248,918.01 today.
Method: Gordon growth: TV = CFₙ × (1 + g) ÷ (r − g), with r > g; exit multiple: TV = metricₙ × multiple; present value = TV ÷ (1 + r)ⁿ.
- After year n the cash flow grows at the same rate forever (Gordon growth), or the business sells at the typed multiple (exit multiple).
- Rates are yearly; the terminal value is at the end of year n and is discounted over n whole years.
- Arithmetic is exact on the typed decimals; the discount power is a floating-point power.
Worked examples
Each example is checked against the calculator on every build.
- Method Perpetual growth (Gordon), Cash flow in the final forecast year $25.79, Perpetual growth rate 5%, Discount rate 12%, Years to the final forecast year (n) 5 gives Terminal value (in year n) $386.91, Present value of the terminal value $219.54, Cash flow in year n + 1 $27.08.Source: OpenStax, Principles of Finance, 11.2 Dividend Discount Models (DDMs) (constant growth: value = D₀(1 + g) ÷ (r − g) = D₁ ÷ (r − g), which needs r > g; terminal value at the end of a high-growth phase: D(N+1) ÷ (r − g); Lore Ltd: $386.91 at the end of year 5, worth $219.54 today at 12%). https://openstax.org/books/principles-finance/pages/11-2-dividend-discount-models-ddms
- Method Perpetual growth (Gordon), Cash flow in the final forecast year $5.00, Perpetual growth rate 4%, Discount rate 8%, Years to the final forecast year (n) 0 gives Terminal value (in year n) $130.00, Present value of the terminal value $130.00, Cash flow in year n + 1 $5.20, Implied multiple of the final cash flow 26.Source: OpenStax, Principles of Finance, 11.2 Dividend Discount Models (DDMs) (constant growth: value = D₀(1 + g) ÷ (r − g) = D₁ ÷ (r − g), which needs r > g; terminal value at the end of a high-growth phase: D(N+1) ÷ (r − g); Lore Ltd: $386.91 at the end of year 5, worth $219.54 today at 12%). https://openstax.org/books/principles-finance/pages/11-2-dividend-discount-models-ddms: D₁ = 5.20 and the value is $130.00
- Method Exit multiple, Final-year EBITDA (or other metric) $2,000,000.00, Exit multiple 8, Discount rate 10%, Years to the final forecast year (n) 5 gives Terminal value (in year n) $16,000,000.00, Present value of the terminal value $9,934,741.17.Source: OpenStax, Principles of Finance, 11.1 Multiple Approaches to Stock Valuation (EV/EBITDA = enterprise value ÷ EBITDA, applied through comparable companies and precedent transactions). https://openstax.org/books/principles-finance/pages/11-1-multiple-approaches-to-stock-valuation
How it works
With the discount rate r and the number of years n from today to the final forecast year (r and g are percents ÷ 100):
Perpetual growth (Gordon). With the final-year cash flow CFₙ and the perpetual growth rate g:
- Cash flow in year n + 1 = CFₙ × (1 + g)
- Terminal value TV = CFₙ × (1 + g) ÷ (r − g)
- Implied multiple = (1 + g) ÷ (r − g), which is TV ÷ CFₙ whenever CFₙ is more than $0
Exit multiple. With the final-year metric Mₙ (such as EBITDA) and the multiple m:
- Terminal value TV = Mₙ × m
Both methods. The present value today is TV ÷ (1 + r)ⁿ.
Rules:
- The growth rate is from −100% to 100%, and the discount rate must be more than the growth rate; otherwise there is no answer.
- The discount rate is from 0% to 1,000%. The years are whole numbers from 0 to 100; with 0 years, the present value equals the terminal value.
- Cash flows and metrics are from $0 to $1 quadrillion, and the multiple from 0 to 1,000.
- The arithmetic is exact on the decimals you type; the discount (1 + r)ⁿ is a floating-point power. Money shows to the cent and the implied multiple to 2 decimals, with halves rounded up (away from 0).
- A result too large for a 64-bit floating-point number gives no answer and a message: with Gordon growth, this happens when the discount rate is too close to the growth rate. So does a result that is not $0 but too close to $0 for one (about 2.5 × 10⁻³²⁴ or less), in both methods: a tiny cash flow or metric, a growth rate near −100%, or a present value over many years. No output is ever a silent $0.
Assumptions
- Gordon growth: after year n, the cash flow grows at g every year forever and the discount rate stays at r.
- Exit multiple: the business could be sold at the end of year n for the metric times the multiple.
- The terminal value is at the end of year n.
Worked examples by hand
Lore Ltd (OpenStax). A $14 dividend grows 13% a year for 5 years, then 5% a year forever, at a 12% required return. The year 5 dividend is 14 × 1.13⁵ = $25.7940925102. Year 6: 25.7940925102 × 1.05 = $27.08. TV = 27.0837971357 ÷ (0.12 − 0.05) = $386.91. Today: 386.911387653 ÷ 1.12⁵ = 386.911387653 ÷ 1.7623416832 = $219.54, as in OpenStax.
A constant-growth stock (OpenStax). A $5.00 dividend just paid, growing 4%, at 8%, with 0 years: D₁ = 5 × 1.04 = $5.20 and TV = 5.20 ÷ 0.04 = $130.00, the stock's value today. Implied multiple = 1.04 ÷ 0.04 = 26.00.
Exit multiple. EBITDA of $2,000,000 in year 5 at 8 times: TV = $16,000,000. At 10%: 16,000,000 ÷ 1.1⁵ = 16,000,000 ÷ 1.61051 = $9,934,741.17.
Other questions people ask
What is terminal value?
Terminal value is the value, at the end of a forecast, of all the cash flows after it. A DCF valuation forecasts a few years one by one, then sums up every later year in one terminal value, because no one can forecast each year forever.
How do I calculate terminal value with the Gordon growth model?
Grow the final-year cash flow by one year at the perpetual growth rate, then divide by the discount rate minus the growth rate: TV = CFₙ × (1 + g) ÷ (r − g). Lore Ltd’s year 5 dividend of 14 × 1.13⁵ = $25.7940925102, growing 5% a year at a 12% required return, gives 25.7940925102 × 1.05 ÷ 0.07 = $386.91. Rounded first to $25.79, it gives $386.85.
How do I calculate terminal value with an exit multiple?
Multiply the final-year metric by the multiple a buyer would pay for it, usually EBITDA times an EV ÷ EBITDA multiple taken from similar companies or recent sales. $2 million of EBITDA at 8 times is a terminal value of $16 million.
Why must the discount rate be higher than the growth rate?
The Gordon formula adds up a cash flow that grows by g and is discounted by r every year forever. When g is at or above r, the later years are worth as much or more than the early ones, the sum has no limit, and the formula gives a meaningless answer. The page asks for r above g.
Why discount the terminal value?
The terminal value is a value at the end of year n, not today. Divide it by (1 + r)ⁿ before adding it to the present value of the forecast years. Lore Ltd’s $386.91 at the end of year 5 is worth 386.91 ÷ 1.12⁵ = $219.54 today.
How much does the growth rate matter?
A lot, when it is close to the discount rate, because it sits in the denominator. At a 9% discount rate, the terminal value is 15.8 times the final cash flow at 2.5% growth and 20.8 times at 4%. Check the implied multiple the page shows against the multiples that similar businesses sell for.