Series 79 practice questioneasyDCF Analysis
What does the terminal value in a DCF model most commonly represent?
- AThe company’s value in the prior year
- BThe estimated future value beyond the projection period✓ Correct answer
- CThe sum of annual depreciation
- DA fixed operating expense
Explanation
Why B — The estimated future value beyond the projection period
Terminal value estimates the company's value beyond the explicit projection period, often representing a substantial portion of the total DCF. Confusing it with historical or expense items can lead to mispricing.
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