easy · Investment Banking
In a DCF, why might a high-growth technology company have a Terminal Value that represents over 80% of its total Enterprise Value?
- Because most of the company's significant cash flows are expected to occur far in the future rather than during the 5-year projection period
- Because a high-growth company's Capex and Depreciation figures always converge precisely to zero by the terminal year of the model.
- Because technology companies with rapid growth are legally required by securities regulators to use the Exit Multiple Method instead of Perpetuity Growth.
- Because high-growth companies typically carry lower WACCs than mature firms, making the Terminal Value less sensitive to the discounting process.
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