Formula: Final Year FCF * (1+Growth Rate) /

(Discount Rate – Growth Rate)

*THE AMOUNT YOU AFFORD TO PAY.
 Find the Terminal Value using the
perpetual growth rate if the CFO tells
you to use a 2% perpetual growth in
your 5-year DCF model. Last year’s FCF
are P250M with a WACC of 10%.
Let’s say that a company expect the
P300 to grow by 5% every year, how
much can the company afford to pay
now to capture all those future
payments, if the required return is
10%?
 Riego Inc. is a high growth publicly traded firm
that is expected to become a stable growth firm
after 5 years. You have estimated an expected
operating income of P50 million in year 6. The
expected growth rate in perpetuity after Year 5
is 3% and the cost of capital is 10%. What will
the terminal value be at the end of Year 5?