{
  "id": "terminal-value",
  "version": "52efe24b2b9f",
  "status": "published",
  "name": "Terminal Value Calculator",
  "question": "What is the terminal value?",
  "summary": "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.",
  "category": "finance",
  "subcategory": "investing",
  "url": "https://www.acalculator.org/finance/terminal-value-calculator",
  "markdown": "https://www.acalculator.org/finance/terminal-value-calculator.md",
  "kind": "function",
  "method": "Gordon growth: TV = CFₙ × (1 + g) ÷ (r − g), with r > g; exit multiple: TV = metricₙ × multiple; present value = TV ÷ (1 + r)ⁿ.",
  "assumptions": [
    "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."
  ],
  "inputs": {
    "$schema": "https://json-schema.org/draft/2020-12/schema",
    "type": "object",
    "properties": {
      "method": {
        "title": "Method",
        "description": "Grow the last cash flow forever at a steady rate, or apply a multiple to the last year’s metric.",
        "type": "string",
        "enum": [
          "growth",
          "multiple"
        ]
      },
      "cf": {
        "title": "Cash flow in the final forecast year",
        "description": "The free cash flow (or dividend) of year n, the last year you forecast.",
        "type": "number",
        "x-unit": "USD",
        "minimum": 0,
        "maximum": 1000000000000000
      },
      "g": {
        "title": "Perpetual growth rate",
        "description": "The yearly rate the cash flow grows forever after year n. It must be below the discount rate.",
        "type": "number",
        "x-unit": "percent",
        "minimum": -100,
        "maximum": 100
      },
      "metric": {
        "title": "Final-year EBITDA (or other metric)",
        "description": "The figure the multiple applies to in year n, for example EBITDA.",
        "type": "number",
        "x-unit": "USD",
        "minimum": 0,
        "maximum": 1000000000000000
      },
      "multiple": {
        "title": "Exit multiple",
        "description": "What a buyer would pay per dollar of the metric, such as the EV ÷ EBITDA of similar companies.",
        "type": "number",
        "minimum": 0,
        "maximum": 1000
      },
      "r": {
        "title": "Discount rate",
        "description": "The yearly rate used to value future cash, such as the weighted average cost of capital (WACC).",
        "type": "number",
        "x-unit": "percent",
        "minimum": 0,
        "maximum": 1000
      },
      "n": {
        "title": "Years to the final forecast year (n)",
        "description": "Years from today to the end of the forecast. The terminal value is discounted over these years.",
        "type": "integer",
        "minimum": 0,
        "maximum": 100
      }
    }
  },
  "outputs": {
    "tv": {
      "label": "Terminal value (in year n)",
      "description": "The value at the end of year n of every cash flow after it.",
      "format": "money"
    },
    "pv": {
      "label": "Present value of the terminal value",
      "description": "Terminal value ÷ (1 + discount rate)ⁿ.",
      "format": "money"
    },
    "next": {
      "label": "Cash flow in year n + 1",
      "description": "Final-year cash flow × (1 + growth rate).",
      "format": "money"
    },
    "implied": {
      "label": "Implied multiple of the final cash flow",
      "description": "Terminal value ÷ final-year cash flow = (1 + g) ÷ (r − g).",
      "format": "number"
    }
  },
  "defaultAnswer": {
    "inputs": {
      "method": "growth",
      "cf": 1000000,
      "g": 2.5,
      "metric": 2000000,
      "multiple": 8,
      "r": 9,
      "n": 5
    },
    "outputs": {
      "tv": 15769230.76923077,
      "pv": 10248918.01470468,
      "next": 1025000,
      "implied": 15.76923076923077
    },
    "text": "At a 9% discount rate, the terminal value is $15,769,230.77, worth $10,248,918.01 today."
  },
  "examples": [
    {
      "given": {
        "method": "growth",
        "cf": 25.7940925102,
        "g": 5,
        "r": 12,
        "n": 5
      },
      "expect": {
        "tv": 386.911387653,
        "pv": 219.54391213766192,
        "next": 27.08379713571
      },
      "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; hand calculation in content.mdx: 14 × 1.13⁵ = 25.7940925102; × 1.05 ÷ 0.07 = 386.911; ÷ 1.12⁵ = 219.544"
    },
    {
      "given": {
        "method": "growth",
        "cf": 5,
        "g": 4,
        "r": 8,
        "n": 0
      },
      "expect": {
        "tv": 130,
        "pv": 130,
        "next": 5.2,
        "implied": 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"
    },
    {
      "given": {
        "method": "multiple",
        "metric": 2000000,
        "multiple": 8,
        "r": 10,
        "n": 5
      },
      "expect": {
        "tv": 16000000,
        "pv": 9934741.168946482
      },
      "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; hand calculation in content.mdx: 2,000,000 × 8 = 16,000,000; ÷ 1.1⁵ = 9,934,741.17"
    }
  ],
  "sources": [
    "OpenStax, Principles of Finance, 11.2 Dividend Discount Models (DDMs): constant growth value = D₀(1 + g) ÷ (r − g) = D₁ ÷ (r − g), which needs r above g; terminal value at the end of a high-growth phase = D(N+1) ÷ (r − g); the $5.00 dividend growing 4% at 8% is worth $130.00; Lore Ltd’s terminal value of $386.91 at the end of year 5 is worth $219.54 today at 12%. https://openstax.org/books/principles-finance/pages/11-2-dividend-discount-models-ddms (retrieved 2026-10-18)",
    "OpenStax, Principles of Finance, 11.1 Multiple Approaches to Stock Valuation: EV/EBITDA = enterprise value ÷ EBITDA, applied through comparable company analysis and precedent transactions. https://openstax.org/books/principles-finance/pages/11-1-multiple-approaches-to-stock-valuation (retrieved 2026-10-18)"
  ],
  "related": [
    "npv",
    "wacc",
    "business-valuation",
    "present-value",
    "discount-rate"
  ],
  "changelog": []
}