I have a Terminal Value (TV) number—how do I back-solve the implied perpetual growth rate (g)?

Enter TV, FCFF in Year N, and your discount rate (WACC). The calculator solves for the single growth rate that makes your TV consistent with a Gordon-growth terminal value.

My implied terminal growth rate is negative (or extremely high). Is that “wrong”?

Not automatically. Negative g can be valid for shrinking/declining businesses. Extremely high g usually means your TV is too large relative to FCFF and WACC, or you accidentally used a discounted TV without toggling “TV is already discounted.”

What if my terminal value is already discounted to present value (PV of TV)?

Turn on “My TV is already discounted (PV of TV)” so the calculator treats your input as PV instead of TV at Year N. If you leave it off, you’ll usually overstate the implied growth rate.

What’s a “reasonable” terminal growth rate for a mature company or market?

In most mature-market DCFs, g is typically a low single-digit nominal assumption (often in the ~2%–4% ballpark). If your implied g is far outside that range, treat it as a red flag and revisit TV, FCFF normalization, and WACC.

Terminal Growth Rate Calculator (Implied g)

Terminal Growth Rate (g) Calculator

Calculate the implied terminal growth rate (g) using the Gordon Growth terminal value formula. Useful for sanity-checking DCF assumptions against discount rate and cash flow inputs.

Terminal Value (TV)

Note: Use terminal value at Year N (not discounted).

My TV is already discounted (PV of TV)

Terminal Year (N)

Free Cash Flow to Firm in Year N (FCFF_N)

Discount Rate (r / WACC)

Results

Implied Terminal Growth Rate (g) %
Terminal Value used (end of Year N) $
Implied FCFF in Year N+1 $
Interpretation

What is Terminal Growth Rate?

Terminal growth rate (g) is the constant long-run growth rate assumed for Free Cash Flow to Firm (FCFF) beyond the explicit forecast period in a DCF.

It matters because small changes in g can dominate Terminal Value, Enterprise Value, and value-creation narratives (ROIC vs WACC, EVA / economic profit).

Practically: it’s a “reality check” on whether your terminal assumptions imply mature, sustainable growth—and whether g stays safely below the discount rate.

Formula

Example

Assume: Terminal Value at Year N (TV_N) = $1,000,000,000, Final Year FCFF (FCFF_N) = $50,000,000, Discount Rate (r / WACC) = 9%.

1) Compute implied terminal growth rate:

2) Compute implied next-year FCFF checkpoint:

How to Use the Terminal Growth Rate Calculator

This tool back-solves the perpetual terminal growth rate implied by your Terminal Value, last forecast-year FCFF, and discount rate. Enter your inputs, toggle PV mode if needed, then sanity-check the implied growth against your WACC and macro reality.

Enter Terminal Value (TV)
- Paste your Terminal Value number in the TV field (ideally the TV at the end of the explicit forecast period, i.e., at Year N).
Toggle PV mode if needed
- - If your TV number is already discounted (you have PV of TV), switch on “My TV is already discounted (PV of TV)”.
- If your TV is the undiscounted terminal value at Year N, leave it off.
Enter Free Cash Flow to Firm in Year N (FCFFₙ)
- Input the final explicit forecast-year FCFF (the “base” cash flow the perpetuity grows from).
Enter Discount Rate (r / WACC)
- - Add your WACC (or discount rate) as a percent. Keep in mind the perpetuity math requires:
r > g
Read the results and validate
- - Review Implied Terminal Growth Rate (g) and Implied FCFF in Year N+1.
- The underlying relationships are:
- Terminal Value at year N (TVₙ) = Free Cash Flow to the Firm in year N+1 divided by (discount rate minus growth rate)
- Free Cash Flow to the Firm in year N+1 (FCFFₙ₊₁) = Free Cash Flow to the Firm in year N multiplied by (1 + growth rate)
- Growth rate (g) = (Terminal Value × discount rate − Free Cash Flow in year N) divided by (Terminal Value + Free Cash Flow in year N)

Frequently Asked Questions

Enter TV, FCFF in Year N, and your discount rate (WACC). The calculator solves for the single growth rate that makes your TV consistent with a Gordon-growth terminal value.
Not automatically. Negative g can be valid for shrinking/declining businesses. Extremely high g usually means your TV is too large relative to FCFF and WACC, or you accidentally used a discounted TV without toggling “TV is already discounted.”
Turn on “My TV is already discounted (PV of TV)” so the calculator treats your input as PV instead of TV at Year N. If you leave it off, you’ll usually overstate the implied growth rate.
In most mature-market DCFs, g is typically a low single-digit nominal assumption (often in the ~2%–4% ballpark). If your implied g is far outside that range, treat it as a red flag and revisit TV, FCFF normalization, and WACC.

Methodology & Sources

Bibliography

Aswath Damodaran (n.d.). Terminal Value: The Tail the Wags the Dog? (Forever or Bust? The Many Paths to Terminal Value) — NYU Stern School of Business https://pages.stern.nyu.edu/~adamodar/pdfiles/country/TerminalValue.pdf
Accessed 2025-12-17
Aswath Damodaran (n.d.). Growth Rates and Terminal Value (DCF Valuation Slides) — NYU Stern School of Business https://pages.stern.nyu.edu/~adamodar/pdfiles/ovhds/dam2ed/growthandtermvalue.pdf
Accessed 2025-12-17
Andrew W. Lo; Jiang Wang (2008). MIT Sloan Finance Problems and Solutions Collection — Finance Theory I (Part 1) — MIT Sloan School of Management https://alo.mit.edu/wp-content/uploads/2015/06/PS_Part1.pdf
Accessed 2025-12-17

Terminal Growth Rate (g) Calculator

Note: Use terminal value at Year N (not discounted).

Results

What It Means?

What is Terminal Growth Rate?

Formula

Example

How to Use the Terminal Growth Rate Calculator

Enter Terminal Value (TV)

Toggle PV mode if needed

Enter Free Cash Flow to Firm in Year N (FCFFₙ)

Enter Discount Rate (r / WACC)

Read the results and validate

Frequently Asked Questions

Methodology & Sources

Bibliography

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