DCF: drag terminal growth
Drag terminal growth. The explicit forecast and WACC stay still, so enterprise value moves because the Gordon tail does. Most of the value sits in that tail, which is why a small change in g is a large change in the answer.
Enterprise value
$1,292,720
Terminal stage today
$913,641
Explicit cash and WACC stay put. Most of the value sits in the terminal stage, which is why g moves the answer so hard. Illustrative arithmetic, not a valuation or advice.
Explicit stage today
$379,079, five flat years at 10 percent.
In short
- Drag the bar right for faster perpetual growth and a larger terminal stage.
- Drag it left toward zero growth, where the tail is a level perpetuity.
- Watch the explicit stage sit still: five flat years at 10 percent have not moved.
- Focus the handle and use the arrow keys to step g.
Two pieces, one enterprise value
How DCF works is the long form. The DCF calculator is the table. Gordon against two-stage DCF is a single-stage perpetuity against this split. Discounted cash flow is the method.
g has to stay below WACC
Gordon growth divides by r minus g. This picture stops before g reaches 10 percent. A usable g is a growth rate the whole economy could bear for a very long time.
Enterprise value, not the equity price
Enterprise value is the operations. Equity subtracts net debt. This picture does not take that bridge.
Common questions
Why is most of the value in the terminal stage?
Because a going concern is assumed to last past the forecast, and a growing perpetuity of even a modest cash flow is a large present value.
What if g equals WACC?
Then the perpetuity has no finite value. The picture will not print one.
Is this a share price?
No. It is enterprise value on a teaching sheet. It is educational material, not advice.
Keep reading
This page is educational material, not financial advice. The figures come from the formula shown and assume the inputs you enter hold for the whole term. Your own rate, fees, taxes and timing will differ, so treat the output as arithmetic to check a decision against, not as a recommendation.