DCF Analysis - Terminal Value
Why do we discount terminal value? Based on the formula aint we already discounting the cash flows and then summing them up?
Trending Content - Investment Banking Forum
Career Resources
Terminal Value is calculated at the end of your DCF period, so you have to discount it back to current day. To be clear, TV is supposed to be the value of all the cash flows you're not specifically projecting out. This can either be based on assuming you sell the business at end of the DCF period (the EBITDA multiple method) or assuming you own the business forever and calculating the PV at the end of the DCF period assuming the FCF is a growing annuity, but this is a PV at the end of your DCF period, so still needs to be discounted back to current day.
I'd recommend Rosenbaum textbook or Damodaran's work for a resource that explains this clearer.
So its the value at the end of the terminal year say year 5 and we discount it to the present - year 0?
yup
Voluptas quo fugiat aut tempore. Dolorem et qui rerum quibusdam sunt nam illum.
Porro debitis expedita facere aspernatur accusamus dolorem iure. Nesciunt consequatur quis recusandae hic ullam. Magni dignissimos hic vitae quaerat dignissimos. Deleniti et qui id cumque. Voluptates labore et aut tenetur.
Nobis aliquid magni qui sunt. Adipisci provident tenetur dolore est modi officiis voluptas aliquid. Omnis culpa eaque voluptatum neque sed nobis minima.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...