Module II· DCF — Terminal ValueIntermediate
Question
How do you calculate the 'implied g' from an exit-multiple-based terminal value?
Answer
Example — implied g from an exit multiple
Inputs:
- WACC: 8.5%
- Terminal Year EBITDA: $100m
- FCF/EBITDA ratio: 60%
- Exit multiple: 8x EV/EBITDA
Calculation:
```
FCF = $100 × 60% = $60m
TV (Exit) = $100 × 8 = $800m
Implied g = WACC − FCF/TV
= 0.085 − $60/$800
= 0.085 − 0.075 = 1.0%
```
Interpretation
an 8x multiple implies a steady-state growth rate of about 1%. Realistic for mature industrial targets; for software/tech, 8x would often be too conservative.