After Intrinsic's DCF projects 10 explicit years of owner earnings, it needs one more number: what's everything after year 10 worth, today? The Gordon growth model answers that with a simple formula for a cash flow stream growing at a constant rate forever.
Terminal Value (at year 10) = Year-11 Cash Flow / (Discount Rate - Terminal Growth Rate)
Present Value = Terminal Value / (1 + Discount Rate)^10
Why it can dominate the whole valuation. For a growing business, the terminal value routinely accounts for more than half of a DCF's total present value — sometimes far more. That single formula, and the terminal growth rate that feeds it, often matters more to the final answer than all 10 years of explicit projections combined.
Why the terminal growth rate is capped at 3%. The formula literally breaks down (produces an infinite or negative value) if the terminal growth rate is set equal to or above the discount rate — and even well below that danger point, assuming perpetual growth faster than the broader economy is implicitly assuming this one company eventually swallows the whole economy. 3% is a deliberately conservative ceiling, hard-capped in the calculation regardless of what's requested.