medium · Investment Banking valuation-core

What is the primary reason for using an 'exit multiple' rather than 'perpetuity growth' to calculate the terminal value in an LBO model?

1. Perpetuity growth models are mathematically invalid for any firm carrying leverage
2. Exit multiples are assumed to always produce a strictly higher valuation outcome
3. Exit multiples are considered the only mathematically valid way to calculate IRR
4. It mirrors how private equity sponsors actually exit and value their investments

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