Perpetual growth should not exceed long-term nominal economic growth, otherwise the company would eventually become larger than the economy. 2–3% is a common, cautious range.

Gordon or exit multiple?

Gordon works with cash flows and makes the assumptions visible. An exit multiple is quicker but takes over today’s market valuation.

Is a high terminal share bad?

Not automatically. For young companies it is normal (SpaceX: 77%). It does show that the result depends heavily on g and WACC.

Knowledge · DCF building block

Terminal value in a DCF explained simply

The terminal value is the value of all cash flows after the forecast period, summed up in one number. In a DCF it usually makes up the largest part of the value.

At a glance

It is calculated with the Gordon growth model (perpetual growth g) or with an exit multiple.
g must be lower than WACC and should not exceed long-term economic growth (usually 2–3% for us).
The closer WACC and g get, the larger the terminal value becomes.

Formula

Terminal value₁₀ = FCF₁₀ × (1 + g) ÷ (WACC − g)
Present value = terminal value₁₀ ÷ (1 + WACC)¹⁰

Worked example 1: Meta, base case (as of Oct 2026)

Terminal value: 174.7 × 1.03 ÷ (9.86% − 3%) = $2,623bn.
Discounted that is $1,024bn, or 62% of enterprise value ($1,657.7bn).
Implicitly the terminal value equals 15 times year-10 FCF.

Sensitivity to perpetual growth g (everything else equal):

g	Terminal share	Value per share
2%	58%	$588
3%	62%	$643
4%	66%	$717

Value per share versus perpetual growth

Worked example 2: SpaceX, base case

Here the terminal value makes up 77% of the DCF value. The further profits lie in the future, the larger the share.

Terminal-value share of the DCF value

What the number does

One percentage point more perpetual growth adds $74 per share for Meta, or +12%. That is why we disclose g.
With the calculator on the Meta page you can move g yourself.

Pitfalls

g too close to WACC: The denominator goes to zero and the value explodes (see chart).
An exit multiple from a boom carries the exaggeration into perpetuity.
A year-10 margin that has not settled yet makes the terminal value too high or too low.

FAQ

Why 3%? Perpetual growth should not exceed long-term nominal economic growth, otherwise the company would eventually become larger than the economy. 2–3% is a common, cautious range.
Gordon or exit multiple? Gordon works with cash flows and makes the assumptions visible. An exit multiple is quicker but takes over today’s market valuation.
Is a high terminal share bad? Not automatically. For young companies it is normal (SpaceX: 77%). It does show that the result depends heavily on g and WACC.