(*) Free cash flow, as defined by Aswath Damodaran, is the cash generated by a business that is available for distribution to investors after accounting for operating expenses, reinvestment needs, and required debt payments. It is a measure that comes in two main forms: free cash flow to equity (the cash left for shareholders after debt obligations) and free cash flow to the firm (the cash available to all capital providers before interest and principal repayments). (1)

(**) The weighted average cost of capital (WACC) is defined as the average rate of return that a company must offer its providers of capital—both debt and equity—in order to finance its assets. According to Aswath Damodaran, WACC is calculated by weighting the required return on equity and the after-tax cost of debt by their respective proportions in the firm’s capital structure, using market values. WACC thus represents the opportunity cost of all capital invested in the business, serving as the appropriate discount rate for valuing the entire firm when using free cash flow to the firm (FCFF). It ensures that the return on investment meets the expectations of both equity and debt holders, accounting for risk and capital structure. (2)

The terminal value based on the Gordon Growth Model (also called the perpetuity growth model) estimates the value of a business or asset beyond the explicit forecast period, under the assumption that free cash flows will grow at a constant rate forever. In practical terms, it is used in discounted cash flow (DCF) analysis to capture the present value of all future cash flows beyond the forecast horizon—commonly making up a large portion of a company’s total valuation. (3)