This question likely has a very simple answer but I have seen conflicting answers on the internet.
In a 5-year DCF to calculate terminal value, do I use the Year 5 cash flow * (1+ g) / (WACC - g) or do I need to project another "Terminal year" cash flow to which I then apply the perpetuity growth formula that is Terminal year cash flow * (1+g) / (WACC - g) ?
On the Multiple Expansion website, the latter method is used hence the source of my confusion.
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In your formula you already calculate year 6 by growing year 5 by factor g. This is correct. Make however sure you discount it by the factor of year 5.
Not quite, you discount by discount factor of t=5. Perpetuity formula assumes cash flows start at t=1.
You're right, I'm getting rusty:)! Corrected my answer
And make sure that you do not include non-recurring cash flows in the year 5 CF you use for the perpetuity formula
Pretty sure your 5th year is considered your terminal year, so you'd use that in your perpetuity.
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