Module II· Football Field & SensitivitiesIntermediate
Question
How do you build a terminal-growth sensitivity?
Answer
Mechanics
The terminal-growth sensitivity shows the change in EV under different g assumptions. Typical range: 1.0% / 1.5% / 2.0% / 2.5% / 3.0%. The effect is non-linear — a higher g has a stronger effect, because g sits in the denominator of the Gordon growth formula.
Deep diveShow more details
Example — TV sensitivity at WACC 9%
Inputs:
- WACC: 9%
- FCF (steady state): $50m
- g scenarios: 1% / 2% / 3%
Calculation:
```
g 1%: TV = $50 × 1.01 / (0.09 − 0.01) = $631m
g 2%: TV = $50 × 1.02 / (0.09 − 0.02) = $729m (+15.5%)
g 3%: TV = $50 × 1.03 / (0.09 − 0.03) = $858m (+36% vs. g 1%)
```
Consequence
±0.5% in g swings EV by ±5–8%.
Pitch tip
'Terminal growth elasticity: 1% increase in g raises EV by 8% — sensitivity to long-term inflation/GDP assumption is material.'