ModeldrillTerminal value by perpetual growth
A financial modeling exercise from Modeldrill. Solve it with a live spreadsheet grid in your browser, with Fill right and Fill down, and it is checked the moment you submit.
The task
Value the business with five forecast years plus a terminal value. Fill the discount factors (row 7), present values (row 8), the terminal value at year 5 using growth in B3 (B10: next year's cash flow divided by rate less growth), its present value (B11) and enterprise value (B12).
What this exercise teaches
The growth formula values all cash flows after year 5 in one step. It usually carries most of the value, which is why the rate and growth inputs deserve the most scrutiny.
A hint if you get stuck
Terminal value uses the year 6 cash flow, which is year 5 grown once: F6*(1+$B$3). It sits at the end of year 5, so discount it with the year 5 factor.
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