When deciding which year the terminal value should appear in, in a discounted cash flow We have to try and find when that company enters the steady state This can be investigated by looking at certain characteristics of the company First of all, you may find that their effective tax rate approaches the marginal tax rate These two figures can often be different due to things like deferred tax assets/liabilities, differences in depreciation and accounting policies between you and the tax authorities But over the long term and as the company matures, this difference start to erode And your effective tax rate does get closer to the marginal tax rate Second of all, your margins have stabilized Imagine you're a start up company doing really well, you could charge premium prices But as you start to mature, the industry starts to mature and competition increase, your margins start to come down Similarly your returns become close to your WACC Again your returns are premium returns upon start up But as competition increases, your returns are forced to be eroded Also your long term capital structure is achieved, start up companies can rarely get hold of much debt As you become mature, you have strong stable cash flows, you can afford to take on cheaper forms of finance such as debt We also find that your capital structure becomes much closer to the industry average Or the average of the mature businesses in your industry Also your growth approaches long term inflation Remember we're talking about the steady state here and this is going to carry on possibly until infinity We can't be growing at 25% every year into infinity, the company will just explode in size Instead your growth does have to come down eventually In edition, you've got something called "high cash conversion" It means you can convert an awful lot of your NOPAT into cash available for financiers Why is this the case? Well remember our company is strong stable company, it's not looking at massive growth! That means it does not have to have high capex, it does not have to have high investment in operating working capital And that's our final characteristic, you have stable capital expenditure, highly predictable cash flows