Terminal Value Calculator

Calculate the terminal value of a DCF valuation using the Gordon growth (perpetuity) method, then see its present value and sensitivity to your assumptions.

DCF Inputs

Final Year Cash Flow

The last explicit-forecast-period free cash flow (FCF) before perpetuity assumptions begin.

Perpetual Growth Rate (g)

Long-run growth rate in perpetuity — typically capped near long-run GDP growth (~2-3%).

Discount Rate (r)

Usually the company's WACC. Must be greater than the growth rate.

Discount Periods (n)

Number of years from today to the end of the explicit forecast period.

Terminal Value Result

Terminal Value

Enter your DCF inputs to calculate terminal value.

TV = FCF x (1 + g) / (r - g) | -

Next-Year Cash Flow

PV of Terminal Value

Discount Factor

Discount Periods

Present Value of Terminal Value

How much the terminal value is worth today, after discounting it back to the present.

Present Value of Terminal Value

Calculate terminal value on the first tab to see its present value.

Present Value Breakdown

Calculate terminal value to see the present value breakdown.

Sensitivity Matrix - Terminal Value by Growth Rate x Discount Rate

Each cell shows terminal value. Gold border = your current inputs. Green = lower than current. Red = higher. N/A when the discount rate does not exceed the growth rate.

Calculate terminal value on the Terminal Value tab to populate the sensitivity matrix.

5 min read 3 steps 7 terms 3 examples 6 FAQs TV = FCF x (1 + g) / (r - g)

Terminal value estimates the value of a business's cash flows beyond an explicit multi-year forecast, and in most discounted cash flow (DCF) models it accounts for the majority of total valuation.

YMYL Reviewed by Calculover Editorial Review · Updated 2026-07-26 · 3 sources

📋

Walk-through

How to Use This Calculator

3 steps

Enter your final-year cash flow and rates

Enter the final explicit-forecast-period free cash flow (FCF), your assumed perpetual growth rate (g), and your discount rate (r) — typically your weighted average cost of capital (WACC). The calculator updates instantly as you type.

Read the terminal value and present value

The Terminal Value tab shows the raw terminal value using the Gordon growth formula. Switch to the Present Value tab to see how much that terminal value is worth today once discounted back by your chosen number of years (n).

Stress-test your assumptions

Open the Sensitivity tab to see how terminal value changes across a range of nearby growth and discount rate assumptions. Because the formula divides by (r - g), small changes to either input can swing the result significantly — this grid shows exactly how much.

⚡

Reference

Formula & Methodology

2 formulas

Gordon growth terminal value

TV = FCF x (1 + g) / (r - g)

FCF is the final explicit-forecast-period free cash flow, g is the assumed perpetual growth rate, and r is the discount rate (usually WACC). The formula assumes cash flows grow at a constant rate g forever, starting one year after the final forecast period, and requires r > g to converge to a finite value.

Present value of terminal value

PV of TV = TV / (1 + r)^n

n is the number of years from today to the end of the explicit forecast period. This discounts the future terminal value back to today's dollars using the same discount rate r, so it can be added to the present value of the explicit-period cash flows to arrive at total enterprise value.

✓

YMYL

Trust, Methodology & Sources

Reviewed by Calculover Editorial Review · Updated 2026-07-26 · 3 sources

Editorial accountability

Author: Quinn Sumner - Editor

Owner: Quinn Sumner - Editorial owner

Reviewer: Calculover Editorial Review - Source and limitation review

Last reviewed: 2026-07-26

Last verified: 2026-07-26

Data effective: 2026-07-26

Methodology

Terminal Value Calculator implements the standard Gordon growth (perpetuity growth) formula: TV = FCF x (1 + g) / (r - g), and discounts the result to present value using PV of TV = TV / (1 + r)^n. All calculations are algebraically exact given user inputs, and the calculator explicitly guards against the undefined case where the discount rate does not exceed the growth rate.

Assumption: The calculator assumes cash flows grow at a single constant rate forever, starting one year after the final forecast period entered by the user.

Assumption: The discount rate is assumed to be constant across all future periods and is not independently validated against the user's actual cost of capital.

Assumption: The model does not account for cyclicality, competitive disruption, or a gradual transition to a lower or higher growth phase — it treats growth as an immediate step to a permanent constant rate.

Assumption: Discount periods (n) are treated as whole years for the present-value discounting step.

Limitations & guidance

Terminal value produced by this calculator can represent the majority of a company's total DCF valuation, so small changes in the growth or discount rate inputs can produce very large swings in the result — always review the Sensitivity tab before relying on a single output.

The Gordon growth method is one of several terminal value approaches; it does not incorporate market-based signals such as comparable-company exit multiples, which may better reflect current market sentiment for some industries.

This calculator does not validate whether the entered growth rate is realistic for the company or economy in question, or whether the entered discount rate reflects the company's true cost of capital.

Professional guidance: This calculator is an educational tool designed to illustrate the Gordon growth terminal value formula and does not constitute investment advice, a financial recommendation, or a solicitation to buy or sell any security. Consult a licensed Certified Financial Planner (CFP), Chartered Financial Analyst (CFA), or corporate finance professional before making investment or capital allocation decisions.

Primary sources

Gordon, M.J. & Shapiro, E. (1956) — Capital Equipment Analysis: The Required Rate of Profit

Damodaran, A. — Valuation: Measuring and Managing the Value of Companies (NYU Stern)

CFA Institute — Equity Asset Valuation: Free Cash Flow Valuation

📖

Glossary

Key Terms Explained

7 terms

Terminal value The estimated value of all cash flows a business will generate beyond the explicit forecast period, assumed to continue growing at a constant rate forever. In most DCF models it represents the single largest component of total valuation.

Gordon growth model Also called the constant-growth or perpetuity-growth model, it values a stream of cash flows that grows at a fixed percentage rate indefinitely, using the formula CF x (1 + g) / (r - g).

Perpetuity A stream of equal (or steadily growing) cash payments that continues forever with no end date. Terminal value is a growing perpetuity that begins the year after the explicit forecast period ends.

Discount rate The rate used to convert future cash flows into their equivalent value today, reflecting the time value of money and the riskiness of the cash flows. In corporate valuation this is usually the weighted average cost of capital (WACC).

WACC Weighted Average Cost of Capital — the blended rate of return a company must generate to satisfy both its equity and debt investors, commonly used as the discount rate r in DCF and terminal value calculations.

Continuing value Another common name for terminal value, emphasizing that it captures the value the business continues to generate after the explicit projection period ends.

Present value The current worth of a future sum of money, calculated by discounting it back using a chosen discount rate. The present value of terminal value is what that far-future lump sum is worth in today's dollars.

👥

Scenarios

Real-World Examples

3 worked examples

🏢

Mature company, low growth

Stable industrial with modest long-run growth

Final Year Cash Flow $1,000,000 Growth Rate (g) 2.5% Discount Rate (r) 9.0% Discount Periods (n) 5

Next-year cash flow grows to $1,025,000, giving a terminal value of $15.77M using TV = 1,025,000 / (0.09 - 0.025). Discounted back 5 years at 9%, the present value of that terminal value is about $10.25M. The growth rate is the input to watch here — it sits comfortably below the discount rate, so the result is stable to small changes.

⚠️

Narrow spread stress test

Discount rate close to growth rate

Final Year Cash Flow $1,000,000 Growth Rate (g) 6.0% Discount Rate (r) 7.0% Discount Periods (n) 5

With only a 1-percentage-point spread between r and g, terminal value balloons to $106M — over six times larger than the baseline scenario despite the same starting cash flow. This illustrates why analysts scrutinize the (r - g) spread closely: a narrow spread makes the valuation extremely sensitive to small assumption changes, visible directly on the Sensitivity tab.

🚫

Invalid assumption

Growth rate at or above the discount rate

Final Year Cash Flow $1,000,000 Growth Rate (g) 8.0% Discount Rate (r) 7.0%

Because g (8%) exceeds r (7%), the formula's denominator (r - g) is negative, producing a nonsensical result. The calculator flags this as undefined rather than showing a misleading number — in practice this means the growth assumption needs to come down, or the discount rate needs to go up, before terminal value can be estimated.

📄

Deep Dive

Understanding the Terminal Value Calculator

3 chapters · 5 min read

Terminal value estimates the value of a business's cash flows beyond an explicit multi-year forecast, and in most discounted cash flow (DCF) models it accounts for the majority of total valuation. This calculator applies the Gordon growth (perpetuity) method to compute terminal value and its present value, and shows how sensitive that number is to your growth and discount rate assumptions.

How the Terminal Value Calculator works

The calculator applies the Gordon growth formula: TV = FCF x (1 + g) / (r - g), where FCF is the final year's free cash flow in your explicit forecast, g is the rate you expect cash flows to grow forever after that, and r is your discount rate (typically WACC). This is the standard textbook formula for valuing a growing perpetuity, first formalized by Gordon and Shapiro (1956) in the context of dividend valuation and widely adopted for free cash flow valuation in corporate finance.

Once terminal value is computed, the calculator discounts it back to today's dollars using PV of TV = TV / (1 + r)^n, where n is the number of years between today and the end of the explicit forecast period. This present value figure is what gets added to the present value of your explicit-period cash flows to arrive at total enterprise value.

Inputs and what they mean

Final Year Cash Flow is the last free cash flow figure from your explicit multi-year forecast — not a historical or current-year number. Growth Rate (g) is the rate you assume that cash flow grows every year forever after; because no company can outgrow the economy indefinitely, most analysts cap this near long-run GDP growth (roughly 2-3% for mature economies), per guidance in Koller, Goedhart & Wessels (2020). Discount Rate (r) is usually your WACC, reflecting the blended required return of your capital providers. Discount Periods (n) is simply how many years stand between today and the final forecast year — it only affects the present value calculation, not the raw terminal value itself.

The input with the outsized effect on the result is the spread between r and g. Because the formula divides by (r - g), a narrow spread magnifies the result dramatically — this is the single most common source of terminal value miscalculation in practice.

Limits and edge cases

The Gordon growth method requires the discount rate to exceed the growth rate (r > g); when it does not, the formula is mathematically undefined, and this calculator will flag the result rather than display a misleading number. The method also assumes a single constant growth rate forever, which does not capture cyclicality, competitive disruption, or a company's eventual maturation into a lower-growth phase — some analysts prefer the exit multiple method (applying a valuation multiple like EV/EBITDA to the final year's metric) as an alternative or cross-check, especially for industries with an active universe of comparable transactions. Because terminal value routinely represents 60-80% of total DCF valuation, any terminal value estimate should be treated as a sensitivity range rather than a single precise number, and cross-checked against at least one alternative method before being relied upon for an investment decision.

❓

Questions

Frequently Asked Questions

6 questions

What is the terminal value formula?+

Terminal value uses the Gordon growth (perpetuity growth) formula: TV = FCF x (1 + g) / (r - g), where FCF is the final explicit-period free cash flow, g is the perpetual growth rate, and r is the discount rate (typically WACC).

Why does the formula require the discount rate to exceed the growth rate?+

If r is less than or equal to g, the denominator (r - g) is zero or negative, which makes the formula produce an undefined or nonsensical negative terminal value. A perpetuity growing faster than the rate at which it is discounted has, mathematically, infinite present value — so the model requires r > g to converge.

What is a typical long-run growth rate (g) to use?+

Most analysts cap the perpetual growth rate at long-run nominal GDP growth, typically 2-3% for mature economies. Using a materially higher rate implies the company will eventually outgrow the entire economy forever, which is not a realistic long-term assumption.

What percentage of total DCF valuation does terminal value usually represent?+

Terminal value commonly represents 60-80% of total enterprise value in a DCF model, especially when the explicit forecast period is short (5-10 years). This is why small changes to the growth or discount rate assumptions can swing the entire valuation, and why the Sensitivity tab is worth reviewing before finalizing a valuation.

What is an alternative to the Gordon growth method?+

The exit multiple method estimates terminal value by applying a valuation multiple (such as EV/EBITDA) observed for comparable companies to the final projected year's financial metric, instead of assuming perpetual growth. It is often used as a cross-check against the Gordon growth result.

How sensitive is terminal value to small changes in g and r?+

Very sensitive. Because terminal value divides by (r - g), a small change to either input can swing the result by double-digit percentages when the spread between r and g is narrow. Use the Sensitivity tab to see the full range of terminal values across nearby growth and discount rate assumptions.

Download a one-page PDF of your numbers instantly. Add your email to also get our occasional calculator tips — no spam, unsubscribe anytime. Privacy.