CONCEPT
Finite-Life Terminal Value
The valuation methodology that replaces the perpetuity formula with an explicit finite horizon for code-dependent companies whose business models may not sustain returns above cost of capital indefinitely.
Finite-life terminal value is the disciplined alternative to the standard perpetuity formula for businesses whose long-term competitive viability is uncertain. The standard approach assumes the business generates cash flows in perpetuity at a steady terminal growth rate, calculated by dividing terminal cash flow times one plus the perpetuity growth rate by the discount rate minus the perpetuity growth rate. The formula's elegance conceals an aggressive assumption: that the business persists forever. The finite-life alternative replaces perpetuity with an explicit horizon — typically ten to twenty years — after which the terminal value is calculated as a liquidation rather than a continuation. The methodology is appropriate for code-dependent companies whose competitive advantages are being structurally eroded by AI, where the perpetuity assumption is no longer defensible.
In The You On AI Field Guide
The methodology connects directly to Damodaran's broader insistence on terminal value discipline. Terminal value typically represents 60-80% of total intrinsic value in a standard DCF; the assumptions underlying it dominate the valuation. The