Module II· DCF — Terminal ValueIntermediate
Question
Worked example, MidCap Software Inc: terminal year EBITDA $80m, exit multiple 12x EBITDA, WACC 9%. Calculate PV(TV) at Year 5 (end-of-year).
Answer
Example — exit-multiple TV (software)
Inputs:
- Year 5 EBITDA: $80m
- Exit multiple: 12x EV/EBITDA
- WACC: 9%
- Discounting: end-of-year, Year 5
Calculation:
```
TV (at end of Year 5) = $80 × 12 = $960m
DF Year 5 = 1 / (1.09)^5 = 0.6499
PV(TV) = $960 × 0.6499 = $624m
```
Mid-year note
if the forecast period is discounted mid-year, the TV usually stays on year-end discounting — it represents the value at the end of Year 5, not at the midpoint.
Sanity check
a software multiple of 12x EBITDA is on the higher side — consistent with a growth profile of high gross margin and customer retention. Implied Gordon g (at WACC 9% and FCF/EBITDA 50%): g about 4.6% — defensible for a mature software company, otherwise a red flag.