It is not practical to forecast cash flows for an infinite number of future years. It is usual to end the cashflow used in a DCF with a terminal value as the final year cash flow. This is the value of all cashflows after the final year. A rough estimate suffices because cash flows that are very far off in the future are less important: the the present value of cashflows falls exponentially with the length of time till they are received.

The terminal value may be calculated using a valuation ratio, or by assuming a constant growth rate and using:

PV = CF/(r-g)

where *PV* is the present value as at the terminal date (it will have to be further discounted in the DCF itself),

*CF* is the actual final year cash flow,

*g* is the growth rate after the final year and

*r* is the discount rate.

Incorporating the above into the DCF formula, it becomes:

PV = CF_{1}/(1+r) + CF_{2}/(1+r)^{2}+ CF_{3}/(1+r)^{3}+ ⋅⋅⋅+ CF_{n}/(1+r)^{n}+ CF_{n}/(r-g)(1+r)^{n}

where *PV* is the present value,

*CF _{i}* is the cash flow received in year

*i*,

*n*is the number of years till the last year of the DCF

*r*and

*g*are as above.

The commonest assumption made for a growth rate used to calculate a terminal value is that it will be the same as long run economic growth.