Terminal Value The tail the wags the dog?

Approaches for estimating terminal value If you are doing an intrinsic valuation, which of the following is never an appropriate way to estimate terminal value? Liquidation value Stable growth model (assume stable growth perpetuity) A growing annuity (say 30 years after your terminal year) Exit multiple

Terminal value: No growth You are estimating the terminal value for a firm with $ 100 million in after-tax operating income (and after-tax cash flow) with no growth expected in perpetuity. It has a cost of capital of 10%. Estimate the terminal value.

Terminal Value: With growth Now assume that you expect the firm to generate 2% in growth rate forever. What will happen to the terminal value? It will go up It will go down It will not change None of the above Any of the above