The perpetuity method for terminal value assumes what about cash flow in the last year of projection?

The perpetuity method for terminal value does indeed assume that cash flow in the last year of projection will grow into perpetuity at a specified rate. This implies that the cash flows are expected to not only continue indefinitely after the projection period but also to increase at a consistent growth rate from that last year onward.

This approach is often utilized because it allows analysts to estimate a stable, long-term value that can be used in financial models, particularly in the context of discounted cash flow (DCF) analysis. The terminal value calculation is vital as it usually represents a significant portion of the overall valuation, particularly for companies expected to generate steady cash flows over long periods.

In contrast, the other options describe scenarios that do not align with the fundamental principle of the perpetuity growth model. Assuming cash flows remain constant, decrease, or fluctuate does not fit with the notion of a growing perpetuity, which is the basis of the method used in this context.