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Terminal Value Calculator: Gordon Growth & Exit Multiple
Estimate the value of all cash flows beyond your forecast horizon using both the Gordon Growth Model and the Exit Multiple method — then compare them side by side. Free, no signup.
Gordon Growth Model
Exit Multiple Method
WACC and Forecast Years are shared with the Gordon Growth panel.
Frequently Asked Questions
Why terminal value dominates a DCF
In a typical five-year discounted cash flow model, terminal value accounts for 60–80% of total intrinsic value. This is mathematically unavoidable: you are capturing every cash flow from the end of the forecast period out to infinity. That concentration is exactly why terminal value deserves more scrutiny than any other input. Run the full model with our DCF calculator, and read the methodology in the discounted cash flow guide.
Two ways to estimate it
The Gordon Growth Model treats the final-year free cash flow as a perpetuity growing at a constant rate: TV = FCF × (1 + g) / (r − g). It is clean and intuitive, but hypersensitive to the spread between your discount rate (r) and terminal growth (g). The Exit Multiple method instead applies a comparable EV/EBITDA multiple to the final-year EBITDA, anchoring terminal value to how the market actually prices similar businesses. Sophisticated analysts compute both and cross-check: this calculator reports the implied perpetual growth rate baked into your exit multiple, so you can see whether the two methods are telling a consistent story.
Frequently asked questions
What is terminal value in DCF?
Terminal value captures the present value of all free cash flows beyond the explicit forecast period in a discounted cash flow model. Because a business is assumed to operate indefinitely, terminal value typically represents 60–80% of a DCF's total intrinsic value — which makes it the single most important, and most dangerous, assumption in the whole model.
Gordon Growth Model vs Exit Multiple — when to use each?
Use the Gordon Growth (perpetuity) method when you have high confidence in a sustainable long-run FCF growth rate, usually 2–3%. Use the Exit Multiple method when you can anchor to comparable trading or transaction multiples, such as EV/EBITDA. Best practice is to run both: if they diverge sharply, treat it as a signal that one set of assumptions is unrealistic and needs stress-testing.
What terminal growth rate should I use?
Cap terminal growth at 2–3% — roughly in line with long-run nominal GDP growth. Anything above 4% implies the business will eventually grow larger than the entire global economy, which is impossible. The terminal growth rate must also stay below your discount rate (WACC), or the Gordon Growth formula becomes mathematically infinite.
How sensitive is DCF to terminal value assumptions?
Extremely. Because terminal value is usually the majority of total DCF value, small changes to the terminal growth rate or exit multiple can swing intrinsic value by 30–50%. The Gordon Growth formula — FCF × (1 + g) / (r − g) — explodes as the spread between discount rate and growth rate narrows. Always run a sensitivity table across a range of growth rates and multiples rather than trusting a single point estimate.