Terminal value

A terminal value avoids forecasting every future year individually. A constant-growth approach uses the first post-forecast cash flow divided by the appropriate required return less sustainable growth. It assumes the chosen cash-flow definition, reinvestment needs, risk and long-run growth are consistent and that the discount rate exceeds growth. Discount the terminal value from the end of the explicit forecast period to today. It can form a large part of total value, so sensitivity and economic plausibility are essential; a high growth assumption should not conceal weak near-term performance.