Assuming all else being equal, companies are a going concern. This means that they will continue to operate and generate cash flows even beyond the forecast period i.e till infinity. But it’s not practically possible to build cash flows till infinity. So how is the value of cash flows beyond the forecast period captured? This value is captured by what is known as terminal value. There are two ways of calculating terminal value.
One is the Gordon growth method which assumes that cash flows grow into perpetuity at constant rate g as the company is in a steady state
Terminal Value = FCFF * (1+g) / (WACC - g)
The other method of calculating terminal value is the exit multiple method
trading comps. If on the other hand the assumption is that the business is going to be sold at the end of the forecast period, then it makes sense to use transaction comps as exit multiples