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It is important to get the terminal value estimate right because the terminal value accounts for a large part of firm value. The terminal value as a percentage of firm value could be anywhere from 50-80% and can be estimated using a number of ways.
We address this question here. “What are the different ways you can estimate terminal value in a DCF valuation?”
The terminal value accounts for a large part of firm value. The terminal value as a percentage of firm value could be anywhere from 50-80%. If your terminal value is higher than 80% of the firm value, it will be considered on the higher side and you will need to explain why.
We address, on this page, the question: “What factors drives the percentage of your total value the terminal value represents?”
You need the value of debt and equity to build a DCF valuation model. Why and when is there a need to iterate on the value of debt and equity in a DCF valuation?
We address this question in this post. “When do you need to iterate on the value of debt and equity in a DCF valuation??
There is no right answer. How do you check if you are on the right track? Why is this important? The terminal value as a percentage of firm value could be anywhere from 50-80% usually. The terminal value as a percentage of firm value could be lower or higher under specific conditions too. Look at the terminal value as a percentage of firm value to make sure your DCF is not too dependent on future projections of terminal cash flow.
How else can you check if your terminal assumptions are reasonable?