Calculating Terminal Value using FCF Model

In the realm of equity valuation, Free Cash Flow (FCF) models play a pivotal role in estimating the intrinsic value of a company's stock. Analysts often employ the Discounted Free Cash Flow (DFCF) approach, which involves projecting future free cash flows and discounting them back to present value using a suitable discount rate. However, one of the critical aspects of this analysis involves determining a terminal value to capture the value beyond the explicit forecast period. The Gordon Growth model is one widely used method to calculate terminal value. Notably, selecting an appropriate growth rate is essential for accurate valuation.

Given XYZ Inc. expects its FCF to be $500 million in Year 5, and anticipates perpetual growth at a rate of 4% beyond Year 5, if the appropriate discount rate is 10%, what would be the terminal value at Year 5?