Terminal Value using Perpetuity Method Calculator

✖Free Cash Flow (FCF) is the amount of cash that a company has left over after it has paid all of its expenses, including net capital expenditures.ⓘ Free Cash Flow [FCF]			+10% -10%
✖Discount Rate is the interest rate charged to commercial banks and other depository institutions for loans received from the Federal Reserve Bank’s discount window.ⓘ Discount Rate [DR]			+10% -10%
✖Growth Rates refer to the percentage change of a specific variable within a specific time period, given a certain context.ⓘ Growth Rate [g]			+10% -10%

✖Terminal Value represents the value of a project or investment at the end of a specific period, typically when explicit cash flow projections end.ⓘ Terminal Value using Perpetuity Method [TV]

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Formula

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Terminal Value using Perpetuity Method

Formula

`"TV" = "FCF"/("DR"-"g")`

Example

`"10169.49"="120000"/("12"-"0.20")`

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Terminal Value using Perpetuity Method Solution

STEP 0: Pre-Calculation Summary

Formula Used

Terminal Value = Free Cash Flow/(Discount Rate-Growth Rate)
TV = FCF/(DR-g)
This formula uses 4 Variables

Variables Used

Terminal Value - Terminal Value represents the value of a project or investment at the end of a specific period, typically when explicit cash flow projections end.
Free Cash Flow - Free Cash Flow (FCF) is the amount of cash that a company has left over after it has paid all of its expenses, including net capital expenditures.
Discount Rate - Discount Rate is the interest rate charged to commercial banks and other depository institutions for loans received from the Federal Reserve Bank’s discount window.
Growth Rate - Growth Rates refer to the percentage change of a specific variable within a specific time period, given a certain context.

STEP 1: Convert Input(s) to Base Unit

Free Cash Flow: 120000 --> No Conversion Required
Discount Rate: 12 --> No Conversion Required
Growth Rate: 0.2 --> No Conversion Required

STEP 2: Evaluate Formula

Substituting Input Values in Formula

TV = FCF/(DR-g) --> 120000/(12-0.2)

Evaluating ... ...

TV = 10169.4915254237

STEP 3: Convert Result to Output's Unit

10169.4915254237 --> No Conversion Required

FINAL ANSWER

10169.4915254237 ≈ 10169.49 <-- Terminal Value

(Calculation completed in 00.004 seconds)

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Created by Vishnu K

BMS College of Engineering (BMSCE), Bangalore

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Satyawati College (DU), New Delhi

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< 18 Capital Budgeting Calculators

Overall Cost of Capital

Go Overall Cost of Capital = (Market Value of the Firm’s Equity)/(Market Value of the Firm’s Equity+Market Value of the Firm’s Debt)*Required Rate of Return+(Market Value of the Firm’s Debt)/(Market Value of the Firm’s Equity+Market Value of the Firm’s Debt)*Cost of Debt*(1-Tax Rate)

Discounted Payback Period

Go Discounted Payback Period = ln(1/(1-((Initial Investment*Discount Rate)/Periodic Cash Flow)))/ln(1+Discount Rate)

Net Present Value (NPV) for even cash flow

Go Net Present Value (NPV) = Expected Cash Flow*((1-(1+Rate of Return)^-Number of Periods)/Rate of Return)-Initial Investment

Capital Asset Pricing Model

Go Expected Return on Investment = Risk Free Rate+Beta on Investment*(Expected Return on Market Portfolio-Risk Free Rate)

Double Declining Balance Method

Go Depreciation Expense = (((Purchase Cost-Salvage Value)/Useful Life Assumption)*2)*Beginning PP&E Book Value

Modified Internal Rate of Return

Go Modified Internal Rate of Return = 3*((Present Value/Cash Outlay)^(1/Number of Years)*(1+Interest)-1)

Cost of Retained Earnings

Go Cost of Retained Earnings = (Dividend/Current Stock Price)+Growth Rate

After-Tax Cost of Debt

Go After Tax Cost of Debt = (Risk Free Rate+Credit Spread)*(1-Tax Rate)

Beginning Inventory

Go Beginning Inventory = Cost of Goods Sold-Purchases+Ending Inventory

Terminal Value using Perpetuity Method

Go Terminal Value = Free Cash Flow/(Discount Rate-Growth Rate)

Trade Discount

Go Trade Discount = multi(List Price,Trade Discount Rate)

Expected Monetary Value

Go Expected Monetary Value = multi(Probability,Impact)

Accounting Rate of Return

Go Accounting Rate of Return = (Average Annual Profit/Initial Investment)*100

Inventory Carrying Cost

Go Inventory Carrying Cost = (Total Carrying Cost/Total Inventory Value)*100

Certainty Equivalent Cashflow

Go Certainty Equivalent Cashflow = Expected Cash Flow/(1+Risk Premium)

Payback Period

Go Payback Period = Initial Investment/Cashflow per Period

Terminal Value using Exit Multiple Method

Go Terminal Value = EBITDA at Last Period*Exit Multiple

Cost of Debt

Go Cost of Debt = Interest Expense*(1-Tax Rate)

Terminal Value using Perpetuity Method Formula

Terminal Value = Free Cash Flow/(Discount Rate-Growth Rate)
TV = FCF/(DR-g)

What is Terminal Value?

Terminal value plays a crucial role in DCF analysis because it represents a significant portion of the total value of a project or investment, especially for projects with long durations or perpetual cash flows. It allows analysts to capture the value beyond the explicit projection period and provides a more comprehensive assessment of the investment's worth. However, it's essential to make reasonable assumptions about future cash flows and growth rates when calculating terminal value to ensure the accuracy of the valuation.

How to Calculate Terminal Value using Perpetuity Method?

Terminal Value using Perpetuity Method calculator uses Terminal Value = Free Cash Flow/(Discount Rate-Growth Rate) to calculate the Terminal Value, The Terminal Value using Perpetuity Method formula is defined as the present value of all future cash flows of a business or an investment beyond a certain point in the future. Terminal Value is denoted by TV symbol.

How to calculate Terminal Value using Perpetuity Method using this online calculator? To use this online calculator for Terminal Value using Perpetuity Method, enter Free Cash Flow (FCF), Discount Rate (DR) & Growth Rate (g) and hit the calculate button. Here is how the Terminal Value using Perpetuity Method calculation can be explained with given input values -> 10169.49 = 120000/(12-0.2).

FAQ

What is Terminal Value using Perpetuity Method?

The Terminal Value using Perpetuity Method formula is defined as the present value of all future cash flows of a business or an investment beyond a certain point in the future and is represented as TV = FCF/(DR-g) or Terminal Value = Free Cash Flow/(Discount Rate-Growth Rate). Free Cash Flow (FCF) is the amount of cash that a company has left over after it has paid all of its expenses, including net capital expenditures, Discount Rate is the interest rate charged to commercial banks and other depository institutions for loans received from the Federal Reserve Bank’s discount window & Growth Rates refer to the percentage change of a specific variable within a specific time period, given a certain context.

How to calculate Terminal Value using Perpetuity Method?

The Terminal Value using Perpetuity Method formula is defined as the present value of all future cash flows of a business or an investment beyond a certain point in the future is calculated using Terminal Value = Free Cash Flow/(Discount Rate-Growth Rate). To calculate Terminal Value using Perpetuity Method, you need Free Cash Flow (FCF), Discount Rate (DR) & Growth Rate (g). With our tool, you need to enter the respective value for Free Cash Flow, Discount Rate & Growth Rate and hit the calculate button. You can also select the units (if any) for Input(s) and the Output as well.

How many ways are there to calculate Terminal Value?

In this formula, Terminal Value uses Free Cash Flow, Discount Rate & Growth Rate. We can use 1 other way(s) to calculate the same, which is/are as follows -

Terminal Value = EBITDA at Last Period*Exit Multiple

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