REIT Discounted Cash Flow valuation model, part six, terminal value perpetuity method. The last thing we need to do is calculate the second approach to the enterprise valuation, which is the terminal value perpetuity method. We'll be using a terminal free cash flow growth rate of 2.35%. I also have an assumption in here for the expected long-term GDP growth. In this case, they're the same. You could use one or the other. It would simply depend on what's more commonly done at your firm or in your office. We generally don't wanna get too aggressive with the long-term growth rates because they just start to really drive up the value of the terminal value. The formula for the terminal value is going to be equal to the free cash flow from year 10 times one plus the terminal free cash flow growth rate divided by WACC minus the terminal growth rate. And we can see it's a similarly large number to what it was under the multiple method. In fact, we can now calculate what the implied multiple this terminal value is based on the EBITDA in year 10, kind of working backwards from the implied free cash flow growth rate that we calculated over here. So what that would be is very simply the terminal value divided by the EBITDA in year 10. So they're tracking quite closely.

Now, the present value of the terminal value is simply going to be the terminal value times the discount rate for the WACC in year 10.

The sum of the present value of the free cash flows, we won't reinvent the wheel. We already did it, they didn't change, so we're just gonna link to that. The percentage as well is very similar. Same thing with my balance sheet accounts. To get from enterprise value to equity value, I'm simply going to link to what I have already done and then I can even copy my implied equity value formula. To get from implied equity value to share price, I take the equity value and I divide it by the total shares outstanding.

And then the premium or discount as I take that implied share price divided by the actual share price minus one. I can now compare my two valuation approaches. These are very close. In theory, they should be within five to 10%. These are very close and primarily it's close because we've chosen for a terminal value free cash flow growth rate 2.35%, which is almost exactly what the implied free cash flow growth rate was. Had we chosen something different, we would start to see the numbers diverging. So the next step will actually be to run some sensitivities.