DCF & WACC
What are the two ways to calculate terminal value, and how do they differ?
Model answer
Gordon (perpetuity) growth: TV = final-year FCF x (1 + g) / (WACC - g), assuming cash flows grow forever at a modest rate g. Exit multiple: TV = final-year metric (e.g., EBITDA) x a market multiple. Gordon is more theoretical/intrinsic; exit multiple is more market-based. Best practice is to cross-check one against the other.
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