Work out one asks us to calculate the terminal value.

Remember that terminal value reflects the value of all of the cash flows that happen after our detailed forecast period so in this case, that would be from year 4 to Infinity.

There are two ways of calculating the terminal value.

In this workout, we've been provided with the terminal value EBIT multiple of 7.5 times so we are going to be following the multiple approach.

To calculate our terminal value we need to take EBIT which in this case would be the same as operating profit.

And we multiply that by the multiple of 7.5.

And that gives us a terminal value of 1,463.

Workout 2 also asks us to calculate the terminal value and we have the same information apart from being given the WACC and a long-term growth rate instead of a multiple.

So this means we need to follow method two, which is using the growing perpetuity formula.

The growing perpetuity formula states that we need to take the cash flow in the final year of our detailed forecast.

And we're going to multiply that by 1 plus the long term growth rate.

And to discount that we need to divide by the WACC which is our discount rate minus the long term growth rate.

Giving us a terminal value of 2292.2.

Take note that these terminal values we have calculated are the terminal values at the end of year 3.

In order to complete our valuation we would need to discount each year's cash flows, and we would also need to discount that terminal value back to today to calculate the value today.