METHOD NOTE 001 / VALUATION
The valuation is precise.
Are the assumptions?
A five-year DCF shows why the most important question often sits beyond the forecast.
How much of the answer is a long-term assumption?
The base case produces enterprise value of 1,612 index units. But 76.3% of that value comes from cash flows after year five. The model is mathematically precise; the economic assumptions still need evidence.
A deliberately simple model.
Unlevered free cash flow is received at each year-end. All cash flows use the same index units. Base WACC is 9.0%; perpetual growth is 2.5%. These are chosen inputs, not observed market estimates.
| Year | 1 | 2 | 3 | 4 | 5 |
|---|---|---|---|---|---|
| FCFF | 80 | 90 | 100 | 110 | 120 |
This is enterprise value, not equity value or a share-price target. Debt, cash and other equity-bridge adjustments are outside this example.
Change the inputs. Watch the dependence.
Years 1–5Terminal PV
| WACC / g | 1.5% | 2.0% | 2.5% | 3.0% | 3.5% |
|---|
The matrix holds operating cash flows constant. The outlined cell is the 9.0% / 2.5% base case. This is sensitivity analysis, not a probability-weighted forecast.
Three questions before trusting the number.
What makes the cash flows sustainable?
High terminal-value dependence does not by itself invalidate a DCF. It raises the importance of competitive position, reinvestment requirements and a credible steady-state margin.
Does growth come with an investment bill?
Raising g mechanically increases value here. A real model must link sustainable growth to reinvestment and returns on capital. Changing g alone can hide that cost.
What evidence would change the conclusion?
Start with customer retention, unit economics, capex intensity and the cost of capital. Build operating scenarios before choosing a valuation range; then cross-check with comparable companies.
The useful output is not one confident number. It is a clear account of what would have to be true.
Open the working files.
Source and scope
All numeric inputs are synthetic and chosen for this example. The standard discounted-cash-flow framework is supported by Aswath Damodaran’s public valuation materials. No market data, company forecasts or investment performance is represented.
NYU Stern / Damodaran — Valuation spreadsheets ↗Revision 0.2 · 05 Oct 2026: added model downloads, terminal-value breakdown and sensitivity analysis. Replace this illustration with a personally researched case when available.