The Present Value of a Growing Annuity (1) What is the value of a company that is expected to generate next year a cash flow of $80 million and that will grow at 5% for the following four years (from the end of year one until the end of year five) and at 2% in perpetuity beyond 5 The discount rate is 10% Because there are 2 growth rates, the valuation is carried out in several steps: 1. Get the PV of the first five cash flows that grow at 5 percent. 2. Get the value, at the end of year 5, of the perpetual cash flow stream that grows at 2 percent. That value is called the company's terminal value at the end of year 5. 3. Get the PV of the terminal value at the 10% discount rate