What’s the difference between the Perpetuity Growth (Gordon) method and the Exit Multiple method?

Gordon estimates value from cash flows growing forever at a steady rate (best when the business reaches a stable “steady state”). Exit Multiple estimates value using a market multiple (best when you have strong comps and a defensible multiple).

Should I enter FCFF in Year N or Year N+1 for the Gordon method?

Enter FCFF in Year N (the last forecast year). The calculator will compute FCFF in Year N+1 as FCFF_N × (1 + g) and use that in the terminal value formula.

Why is my terminal value exploding (or showing weird/negative results)?

In the Gordon method, the math breaks if g ≥ r (growth rate equal to or higher than the discount rate). Even if g is just close to r, terminal value can blow up. Lower g, raise r, or sanity-check that you’re using realistic long-run assumptions.

How do I choose a “reasonable” terminal growth rate (g) or exit multiple?

g should reflect long-run, sustainable growth (often anchored to long-term nominal GDP/inflation context) and must be consistent with your discount rate assumptions. For exit multiples, use comparable-company (or precedent transaction) multiples that match your metric definition (e.g., EV/EBITDA on a consistent basis) and reflect your company’s steady-state margins and growth.

Terminal Value Calculator (Gordon Growth & Exit Multiple)

Terminal Value Calculator

Compute terminal value (TV) using either the Perpetuity Growth (Gordon) method or an Exit Multiple. This tool also calculates the present value (PV) of terminal value given a discount rate and terminal year (N).

Terminal Value Method

Terminal value as an enterprise value using FCFF and WACC. Formula: TV = FCFF(N+1) ÷ (r − g). Requires r > g.

Terminal Year (N)

Discount Rate (WACC / required return)

Free Cash Flow to Firm in Year N (FCFF_N)

Terminal Growth Rate (g)

Metric in Year N (e.g., EBITDA, EBIT, Revenue)

Multiple Type

Exit Multiple

Results

Terminal Value (hidden helper) $
PV of Terminal Value (hidden helper) $
Terminal Value (Enterprise Value, end of Year N) $
Terminal Value (Equity Value, end of Year N) $
Implied FCFF in Year N+1 $
PV of Terminal Value (Enterprise Value, today) $
PV of Terminal Value (Equity Value, today) $

What is Terminal Value?

Terminal value is the estimated value of a company’s operating cash flows after the explicit forecast period ends (after Year N).

In a DCF, it converts long-run value creation assumptions (normalized FCFF, sustainable growth, risk via WACC, or market multiples like EV/EBITDA) into an end-of-horizon enterprise value.

Because it can represent a large share of total enterprise value, small changes in g, WACC, or the exit multiple can swing the valuation materially.

Formula

Example

Perpetuity Growth (Gordon): Assume N = 5, r = 10%, g = 2%, and FCFF_N = $50,000,000. Then FCFF_{N+1} = $51,000,000, TV_N = $637,500,000, and PV(TV) = $395,837,343.
Exit Multiple: Assume N = 5, r = 10%, Metric_N (e.g., EBITDA) = $80,000,000, and ExitMultiple = 12 (EV/EBITDA). Then TV_N = $960,000,000 and PV(TV) = $596,084,470.

How to Use the Terminal Value Calculator

Pick a terminal value method (Gordon growth or Exit Multiple), enter the inputs shown, then use the results to sanity-check how much of your valuation is coming from the terminal period.

Choose the terminal value method
- Use the toggle at the top: Perpetuity Growth (Gordon) or Exit Multiple.
Set the timing and discount rate
- - Enter Terminal Year (N) (the last explicit forecast year).
- Enter Discount Rate (WACC / required return) as a percent.
Enter the method-specific inputs
- - Perpetuity Growth (Gordon):
- Enter Free Cash Flow to Firm in Year N (FCFF_N) and Terminal Growth Rate (g).
- The calculator applies:
FCFF in year N+1 = FCFF in year N × (1 + g)
Terminal Value at year N = FCFF in year N+1 ÷ (r − g)
- Exit Multiple:
- Enter Metric in Year N (e.g., EBITDA/EBIT/Revenue), choose the Multiple Type (e.g., EV/EBITDA), and enter the Exit Multiple.
Review terminal value and present value
- - Check Terminal Value (Enterprise Value, end of Year N).
- Check PV of Terminal Value (Enterprise Value, today), discounted as:
Present Value of the Terminal Value = Terminal Value at year N ÷ (1 + r)^N
Stress-test assumptions (optional)
- - Use Scenarios (if available) and/or adjust r, g, or the multiple to see how sensitive the valuation is.
- Use “What it means?” to ensure you’re interpreting EV vs PV correctly.

Frequently Asked Questions

Gordon estimates value from cash flows growing forever at a steady rate (best when the business reaches a stable “steady state”). Exit Multiple estimates value using a market multiple (best when you have strong comps and a defensible multiple).
Enter FCFF in Year N (the last forecast year). The calculator will compute FCFF in Year N+1 as FCFF_N × (1 + g) and use that in the terminal value formula.
In the Gordon method, the math breaks if g ≥ r (growth rate equal to or higher than the discount rate). Even if g is just close to r, terminal value can blow up. Lower g, raise r, or sanity-check that you’re using realistic long-run assumptions.
g should reflect long-run, sustainable growth (often anchored to long-term nominal GDP/inflation context) and must be consistent with your discount rate assumptions. For exit multiples, use comparable-company (or precedent transaction) multiples that match your metric definition (e.g., EV/EBITDA on a consistent basis) and reflect your company’s steady-state margins and growth.

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 (New York University) https://pages.stern.nyu.edu/~adamodar/pdfiles/country/TerminalValue.pdf
Accessed 2025-12-17
Dirk Jenter (2003). Valuing Companies (Finance Theory II 15.402 – Spring 2003) — MIT OpenCourseWare (Massachusetts Institute of Technology) https://ocw.mit.edu/courses/15-402-finance-theory-ii-spring-2003/5523ae27fa193d7409079ed210e66e56_lec21avaluingcompanies.pdf
Accessed 2025-12-17
Pablo Fernández (2013). Valuing Companies by Cash Flow Discounting: Fundamental Relationships and Unnecessary Complications (Working Paper WP-1062-E) — IESE Business School – University of Navarra https://www.iese.edu/media/research/pdfs/WP-1062-E.pdf
Accessed 2025-12-17

Terminal Value Calculator

Results

What It Means?

What is Terminal Value?

Formula

Example

How to Use the Terminal Value Calculator

Choose the terminal value method

Set the timing and discount rate

Enter the method-specific inputs

Review terminal value and present value

Stress-test assumptions (optional)

Frequently Asked Questions

Methodology & Sources

Bibliography

Other Calculators in Corporate Finance & Analysis

Discounted Cash Flow (DCF) Calculator

Enterprise Value Calculator

Weighted Average Cost of Capital (WACC) Calculator

Present Value (PV) Calculator

Free Cash Flow to Firm (FCFF) Calculator

Free Cash Flow to Equity (FCFE) Calculator