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Terminal Value

Paycom Software Inc.

Paycom Software Inc. (PAYC)

Technology

Growth in perpetuity method:
Long-term growth rate
WACC (%) 16.61
Free cash flow (t + 1) 769.50
Terminal Value 6,102.30
Present Value of Terminal Value 2,830.18



Now that we’ve estimated the free cash flow generated over the five-year forecast period, we need to estimate the value of Paycom Software Inc.’s cash flows after that period (if we don’t include this, we would have to assume that Paycom Software Inc. stopped operating at the end of the five-year forecast period). To do so, we’ll determine the company’s terminal value.