The situation
Year-five FCFF is ₹40 crore. Long-run growth is 3%, WACC is 9%, and growth starts in year six.
Your task
Find terminal value at year five and its value today.
Reveal step-by-step solution
Set up the problem
Year-six FCFF is ₹40 × 1.03 = ₹41.2 crore. The capitalization spread is 9% − 3% = 6%.
Work through the numbers
Terminal value at year five is ₹41.2 ÷ 0.06 ≈ ₹686.67 crore. PV = ₹686.67 ÷ 1.09⁵ ≈ ₹446.29 crore.
Interpret the result
Check that growth is below WACC and supported by steady-state reinvestment. The ₹446.29 crore excludes the explicit years.
What to remember
Use first post-forecast cash flow in the numerator. Discount from the terminal date to today.