What factor can influence the terminal value in a DCF model?

The terminal value in a discounted cash flow (DCF) model represents the present value of all future cash flows of a business beyond a specific forecast period, extending indefinitely into the future. One of the key determinants of terminal value is the perpetual growth rate (g), which reflects the expected rate at which a company will grow its cash flows indefinitely after the explicit forecast period.

When calculating terminal value using the Gordon Growth Model, the formula involves dividing the cash flow from the last forecasted period by the difference between the discount rate and the perpetual growth rate. Thus, a higher perpetual growth rate leads to a higher terminal value, while a lower growth rate results in a lower terminal value. This makes the choice regarding the perpetual growth rate critically important, as it directly influences the long-term valuation of the firm in a DCF model.

The other factors listed, while they may impact the overall valuation or financial health of a company, do not directly influence the calculation of terminal value in this context. For example, a company's market share might impact its revenues and cash flows but does not have a direct mathematical relationship with the terminal value calculation. Similarly, interest rates affect the discount rate used in the DCF calculation, which influences the present value of cash flows but not the