medium · Investment Banking valuation-core
An analyst is using the Exit Multiple Method (EMM) for Terminal Value.
If they assume a 9.0x exit multiple, but the comparable companies currently trade at 7.0x, what is the most likely justification?
- The exit multiple must be pushed higher purely to account for the mid-year discounting convention that was applied
- The company is projected to have significantly higher growth and margins in the terminal year than the current peer group.
- The analyst is simply accounting for the time value of money across the full discrete projection period before terminal value
- A 9.0x multiple is deliberately chosen to ensure the resulting DCF valuation comfortably exceeds the company's current trading share price
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