Hi guys, I am facing an issue at work and really have no clue which way to move forward from here. I am doing a valuation for a mall, where revenue is received quarterly, hence until the terminal value I discount my cash flow quarterly (using the compounding formula I derived the quarterly discount rate from the annual one). Until here all is lovely ..... but what about terminal value? Since my period is one quarter it makes sense I use the final quarter for the terminal value calculation. At the same time the growth rate is applied to the revenue annually (and this number is then divided in 4 equal quarters - lease revenue, annual increments, collection is done quarterly), so by capitalizing the last quarter at the quarterly growth rate I assume some growth that doesn't actually happen, since the revenues don't grow from one quarter to the other, but on an annual basis.
Would it be appropriate to build the dcf on a quarterly basis, but to take into consideration the last 4 quarters for the terminal value (having the terminal value on an annual basis CF year n*(1+g)/(WACC-g) rather than on the last period=last quarter)???
Thaaaanks
Yes, there's no rule that requires that your DCF be perfectly flexible and/or consistent. You absolutely can go in and modify the ending to reflect reality. In fact, I'd assume that that is what your superiors would expect of you.
I probably would have summed the four quarters and discounted annually. Then annualize final quarter to derive terminal value. How did your method work out for you?
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