medium · Investment Banking valuation-core

In a situation where the WACC is 8% and the perpetuity growth rate (g) is 8%, what happens to the PGM Terminal Value?

1. The WACC is automatically bumped up by one percent so that the model can keep functioning
2. The value becomes undefined or infinite because the denominator (WACC - g) becomes zero.
3. The Terminal Value is simply ignored and the model relies solely on the Exit Multiple Method
4. The Terminal Value ends up equaling the Year 5 UFCF multiplied by exactly 1.0 in this case

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