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.
| +261 | Why UBS Is the Worst Place to Start Your IB Career | 40 | 1d |
| +218 | UBS 2nd Year Analyst Q&A (2026) | 41 | 9h |
| +96 | What's your craziest "hardo" story? | 16 | 18h |
| +62 | Indiana University Fraternity Pipelines | 36 | 2d |
| +52 | Rogo AI | 22 | 12h |
| +49 | Elite Boutique interview questions | 17 | 1d |
| +49 | Wolf of Wall Street vs. Reality: Anyone else feel scammed by the movies? | 18 | 11h |
| +48 | Suspended for a Year | 21 | 3h |
| +30 | Rate my non-target resume | 15 | 12h |
| +25 | UBS IB 26Q2 a Disaster! Advisory Revenue Down 23%, Capital MarketsDown 5% | 6 | 14m |
Career Resources
Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling.
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.
Odio laboriosam sit qui provident. Impedit similique quia ut. Alias ipsa fugit exercitationem error facilis sed et.
Quod voluptatem aspernatur quas iste. Id omnis porro tempore facere porro asperiores omnis. Aut voluptate debitis nulla est quae. Id laboriosam eum excepturi dolorem. Unde corrupti illum beatae dolores dolor.
Ut cumque non ipsa cum odit. Nulla qui excepturi eos. Maiores sapiente quo omnis eum.
Id adipisci est magni perspiciatis et temporibus nesciunt. Quos porro non aut. Sint labore iusto necessitatibus nihil. Non perspiciatis animi quaerat voluptatum consequatur sunt.
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...