A simple discounted-cash-flow model produces enterprise value of 1,612 index units, but 76.3% comes from cash flows beyond year five. The key research task is to justify the steady state, not to add decimal places to the output.
Assume unlevered year-end cash flows of 80, 90, 100, 110 and 120 index units. Discount them at a 9.0% WACC, with perpetual growth of 2.5% from year six.
| Measure | Result |
|---|---|
| Present value of years 1–5 cash flows | 382.3 |
| Present value of terminal value | 1,229.9 |
| Enterprise value | 1,612.2 |
| WACC rises to 10.0%; growth unchanged | EV 1,390.2 / −13.8% |
Terminal-value dependence is not automatically a flaw. It makes competitive durability, reinvestment and a defensible long-run growth assumption more consequential. Increasing growth alone raises value in this simplified model; a real analysis must also account for the investment needed to sustain it.
Test customer retention, pricing power, unit economics and capital intensity. Build operating scenarios before selecting a valuation range. Cross-check against comparable companies, and complete the debt-and-cash bridge before drawing any equity-value conclusion.