Warren Buffett prefers to use an infinite horizon when making value-based acquisitions.
Traditional valuation models including those displayed in our text call for a forecast for a
selected variable out to 3,5,7, or 10 years (generally) plus the estimate of a Terminal Value for
the business in question. Summarize how the Terminal Value is to be estimated, and explain
why this approach is “totally wrong.” (Hint: Don’t defend “Terminal Value.” You could contrast it
to the logic of using in “infinite horizon” even if the business is unlikely to last “that long.”
Sample Solution