The article discusses the topic of terminal value estimation when valuing a business with the discounted cash flow methods. Derivation of the key terminal value parameters - free cash flow, discount rate, and growth rate - is the main theme of the article. The problem of terminal free cash flow derivation and the corresponding investment adequacy assumption is emphasized. The article reminds the danger of applying the last explicitly planned cash flow for the terminal value when the business has not become fully stabilized. The most important issues related to the terminal value assessment are illustrated on a practical example. The article is based primarily on the problems, questions, and insufficiencies that have been identified in real valuation reports.
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Volume (Year): 2007 (2007)
Issue (Month): 1 ()
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