Question of the day
2026-11-01
Walk me through cross-checking an exit-multiple terminal value using the Gordon growth method.
Answer it out loud first — like you would in the room. Then check yourself:
Reveal the model answer
Model answer
Take the TV you computed from the exit multiple and back out the perpetuity growth rate it implies. Set EBITDA-based TV equal to the Gordon formula and solve for g: from TV = FCF_N x (1 + g) / (WACC - g), rearrange to g = (TV x WACC - FCF_N) / (TV + FCF_N). Then sanity-check that implied g: it should land roughly in the long-run GDP/inflation range (commonly ~2-3% in developed markets). If the exit multiple implies a 6% perpetual growth rate or a negative one, the multiple is too high or too low and needs revisiting.
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