Terminal Value Calculator.
Gordon Growth and Exit Multiple side-by-side. Full formula derivation, industry-benchmark guidance from the Damodaran NYU Stern dataset, illustrative worked examples. No email capture, no upsell, no demo, both TV methods with the assumptions you can challenge.
Both methods, side by side, with a cross-check
Set forecast horizon and WACC once, then adjust the inputs that drive each method. The calculator solves for the implied perpetuity growth rate from the exit multiple so you can see when your two methods are quietly disagreeing.
Terminal value usually drives 60 to 80 percent of DCF enterprise value
The headline EV number a DCF spits out is dominated by year-six-and-beyond cash flows. That makes the perpetuity growth rate, exit multiple, and WACC the three most important inputs in the entire model.
Pick the right method (and run the other one anyway)
Each method has a defensible context. The discipline is to compute both, then reconcile.
| Method | Best for | Watch out for | Primary source |
|---|---|---|---|
| Gordon Growth | Mature, slow-growth, stable-margin businesses where a single perpetuity growth rate is defensible. | Acute sensitivity to the spread between WACC and g. The formula diverges as g approaches WACC. | Damodaran, Investment Valuation, 3rd ed., Ch. 12 |
| Exit Multiple | M&A situations and businesses where comparable transaction or trading multiples are observable. | Implicit assumption that today's multiples persist N years out. Comp-set selection drives the result. | Koller et al., Valuation, 7th ed., Ch. 11 |
| Two-stage / H-model | High-growth companies in transition to a mature steady state, where a single g understates near-term growth. | Adds an extra growth assumption (g_high, duration). Each new lever is another judgement to defend. | CFA Program Curriculum, Level II, Equity (2024) |
The four mistakes that show up in 80% of student and junior-banker DCFs
Gordon Growth is TV at end of year n = FCF_(n+1) / (WACC - g). The numerator is the cash flow one year AFTER your final forecast year, not the final-forecast-year number itself. Forgetting the (1+g) step understates terminal value by roughly g percent.
Setting g above the long-run nominal GDP growth rate implies the company outgrows the economy forever. That is mathematically incoherent. Use 2 to 3 percent for the US as a ceiling; lower for slow-growing or contracting end-markets.
TV is calculated at the end of year n. To add it to enterprise value at year zero you must divide by (1 + WACC)^n. Skipping this step overstates enterprise value by the discount factor.
An exit multiple imported from today's trading comps embeds today's growth expectations, today's interest rates, and today's risk premium. Back-solve the implied perpetuity g; if it exceeds 4 percent you are pricing in permanent above-GDP growth.
Method pages, assumption pages, and worked examples
Each page is a single self-contained artifact with formula, source citations, and verification dates.
Derivation from the constant-growth perpetuity, sensitivity to g and WACC, when the formula breaks.
Multiple selection, comp-set discipline, and how to back-solve the implied perpetuity growth.
Side-by-side comparison, when each one wins, how to reconcile a divergence.
How to pick g defensibly. Country-level nominal GDP anchors and the 4 percent ceiling.
Why WACC choice drives TV more than any other lever. Damodaran industry WACC references.
Step-by-step DCF + TV walk-throughs for a SaaS company, an industrial, and a stable utility. All fictional.
Terminal value questions answered
What is terminal value in a DCF?
Terminal value (TV) is the present value of all expected free cash flows beyond the explicit forecast horizon. In a typical 5-to-10-year DCF, TV captures the going-concern value of the business from the end of the forecast period forward, and it commonly drives 60 to 80 percent of the total enterprise value the model produces.
What is the formula for terminal value using Gordon Growth?
TV at the end of year n equals the final-year free cash flow times (1 + perpetuity growth rate g), divided by (WACC minus g). The result is then discounted back to today using (1 + WACC) raised to the power n.
What is the formula for terminal value using the exit multiple method?
TV at the end of year n equals the final-year EBITDA times an exit EV/EBITDA multiple chosen from comparable companies or precedent transactions. The result is then discounted back to today using (1 + WACC) raised to the power n.
Which method should I use, Gordon Growth or Exit Multiple?
Use both and reconcile. Gordon Growth anchors to long-run macroeconomic logic, the exit multiple anchors to current market pricing. If the two diverge by more than 15 to 20 percent, one of the assumptions is doing most of the work and you should revisit the perpetuity growth rate, exit multiple, or WACC.
What is a reasonable perpetuity growth rate to use?
A long-run nominal GDP growth rate for the relevant economy is the standard ceiling. For the United States, that has historically been around 2 to 3 percent. Using g above 3 to 4 percent implies the company grows forever faster than the economy, which is mathematically incoherent over an infinite horizon. See the perpetuity-growth assumptions page for country-level reference.
Looking for SaaS revenue multiples instead?
Our sister site SaaSValuationMultiple.com tracks current public-comp ARR multiples by stage, growth rate, and net revenue retention. Useful when you need the exit-multiple input on this page.
Visit SaaSValuationMultiple.com