hard · Investment Banking valuation-core

When comparing the sensitivity of Terminal Value to a 0.5% change in WACC versus a 0.5% change in the perpetuity growth rate (g), which is typically true?

1. Terminal Value is generally more sensitive to a 0.5% change in the growth rate g than to an equal shift applied to the WACC discount rate.
2. Sensitivity is identical either way because only the resulting spread between WACC and g ultimately drives the entire Terminal Value formula output.
3. Terminal Value is more sensitive to a 0.5% change in WACC because it impacts both the Terminal Value and the individual discount factors for years 1-5.
4. Sensitivity to g is inherently higher since it compounds the growth of projected free cash flows into perpetuity, unlike WACC, which is a fixed discount input.

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