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In a DCF valuation, what does the terminal value represent?

  1. A The value of assets at liquidation
  2. B The value of all cash flows beyond the explicit forecast period
  3. C The initial investment required
  4. D The total debt outstanding
Answer

The value of all cash flows beyond the explicit forecast period

Terminal value often accounts for the majority of a DCF valuation, which is why the growth rate and exit multiple assumptions behind it deserve careful scrutiny.

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