DCF & WACC
State the value-driver terminal value formula linking growth, ROIC, and reinvestment, and show why growth adds no value when ROIC equals WACC.
Model answer
TV = NOPAT_(N+1) x (1 - g/ROIC) / (WACC - g). The g/ROIC term is the reinvestment rate: to grow at g, the firm must reinvest g/ROIC of NOPAT, so FCF = NOPAT x (1 - g/ROIC). Example: NOPAT 100, ROIC…
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