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DCF: The terminal value trap
Terminal value often represents 70-80% of Enterprise Value. Understand why this is a problem.
Corporate FinanceAdvancedCalculation
You present a DCF valuation to your MD. He looks at your numbers and says: "*Terminal value represents 85% of EV. Redo your model.*"
Here is your current model:
Given
| Sum PV(FCF) Years 1-5 | 45 M€ |
| PV(Terminal Value) | 255 M€ |
| WACC used | 8 % |
| Terminal growth (g) | 3 % |
| Year 5 FCF | 15 M€ |
Question 1/3
What % of EV is represented by terminal value? Confirm the MD's number.
%
0/3
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