where 
the terminal growth rate is the constant rate at which a company is expected to grow forever 2 this growth rate starts at the end of the last forecasted cash flow period in a discounted cash flow model and goes into perpetuity a terminal growth rate is usually in line with the long term inflation rate but not higher than the historical gross domestic product gdp growth rate if investors assume a finite window of operations there is no need to use the perpetuity growth model instead the terminal value must reflect the net realizable value of a company s assets at that time 1 this often implies that the equity will be acquired by a larger firm and the value of acquisitions are often calculated with exit multiples exit multiples estimate a fair price by multiplying financial statistics such as sales profits or earnings before interest taxes depreciation and amortization ebitda by a factor that is common for recently acquired and similar firms the terminal value formula using the exit multiple method is the most recent metric i e sales ebitda etc multiplied by the decided upon multiple usually an average of recent exit multiples for other transactions 2 investment banks often employ this valuation method but some detractors hesitate to use intrinsic and relative valuation techniques simultaneously terminal value accounts for a significant portion of the total value of a business in a dcf model as it represents the value of all future cash flows beyond the projection period this means that the assumptions made about terminal value can significantly impact the overall valuation of a business terminal value vs net present valueterminal value is not the same as net present value npv terminal value is a financial concept used in discounted cash flow dcf analysis and depreciation to account for the value of an asset at the end of its useful life or of a business past some projection period net present value npv measures the profitability of an investment or project it is calculated by discounting all future cash flows of the investment or project to the present value using a discount rate and then subtracting the initial investment npv is used to determine whether an investment or project is expected to generate positive returns or losses it is a commonly used tool in financial decision making as it helps to evaluate the attractiveness of an investment or project by considering the time value of money 