easy · Investment Banking valuation-core

In a DCF, why might a high-growth technology company have a Terminal Value that represents over 80% of its total Enterprise Value?

1. 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
2. Because a high-growth company's Capex and Depreciation figures always converge precisely to zero by the terminal year of the model.
3. Because technology companies with rapid growth are legally required by securities regulators to use the Exit Multiple Method instead of Perpetuity Growth.
4. Because high-growth companies typically carry lower WACCs than mature firms, making the Terminal Value less sensitive to the discounting process.

Sign up free to see the explanation and track your rank →