medium · Investment Banking
In a situation where the WACC is 8% and the perpetuity growth rate (g) is 8%, what happens to the PGM Terminal Value?
- The WACC is automatically increased by 1% to allow the model to function.
- The value becomes undefined or infinite because the denominator (WACC - g) becomes zero.
- The Terminal Value is ignored and the model relies solely on EMM.
- The Terminal Value equals Year 5 UFCF times 1.0.
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