medium · Investment Banking
While performing a DCF, an analyst observes that decreasing the Perpetuity Growth Rate (g) from 3.0% to 2.5% has a larger impact on valuation than increasing the WACC from 9.0% to 9.5%.
Which component is driving this sensitivity?
- The WACC of 9.0% is much higher than the Perpetuity Growth Rate itself
- The company generates very high near-term cash flows relative to total value
- The Exit Multiple Method, not the Perpetuity Growth Method, was used for Terminal Value
- The Terminal Value represents a very high percentage of the total Enterprise Value
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