Terminal value is critical for valuation purposes because very often it is a large part of what constitutes the value of a firm. In this short note I answer and clarify some typical questions and myths related to the calculation of terminal value. They are related to the use of non growing perpetuities, inflation and real growth; the use of Net Operating Profits Less Adjusted Taxes, NOPLAT as a proxy to the Free Cash Flow in perpetuity; the use of the typical textbook formula for estimating terminal value; and the treatment of working capital in perpetuities.
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Paper provided by UNIVERSIDAD TECNOLÓGICA DE BOLÍVAR in its series Documentos de Trabajo with number
005679.