Module II· DCF — Terminal ValueAdvanced
Question
How do you model terminal value for a sector in structural decline (e.g. print media, coal)?
Answer
Mechanics
g can be negative (typically −1% to −3%) in Gordon. The formula TV = FCF × (1+g) / (WACC − g) still works mathematically (positive denominator, numerator positive but shrinking).
Deep diveShow more details
Example — print media with negative growth
Inputs:
- WACC: 10%
- g (steady state): −2% (a structurally shrinking market)
Calculation:
```
TV = FCF × (1 + g) / (WACC − g)
= FCF × 0.98 / (0.10 − (−0.02))
= FCF × 0.98 / 0.12
= 8.17 × FCF
```
Comparison (positive growth)
at g = +2%, TV would be 25.5 × FCF — a negative growth rate pushes the TV multiplier brutally down.
Caution
a negative-g assumption means perpetual shrinkage — eventually FCF = 0. More realistic: an explicit run-off model (Years 6–20 with a decline curve, then TV = 0 or liquidation value).
Pitch tip
for structurally shrinking sectors, sum-of-decline-years + liquidation is often more honest than Gordon.