medium · Investment Banking valuation-core
While performing a DCF, an analyst observes that decreasing the Perpetuity Growth Rate (g) from 3.0% to 2.5% has a larger impact on valuation than increasing the WACC from 9.0% to 9.5%.
Which component is driving this sensitivity?
- The WACC of 9.0% is much higher than the Perpetuity Growth Rate itself
- The company generates very high near-term cash flows relative to total value
- The Exit Multiple Method, not the Perpetuity Growth Method, was used for Terminal Value
- The Terminal Value represents a very high percentage of the total Enterprise Value
Sign up free to see the explanation and track your rank →
More Investment Banking valuation-core practice
- What is the Multiple on Invested Capital (MOIC)?
- What is the control premium?
- Which valuation methodology would likely produce the 'floor' valuation for a mature indust
- Which of the following changes, held in isolation, would most likely achieve this?
- What is the Multiple on Invested Capital (MOIC)?
- If a company has an Unlevered Free Cash Flow (UFCF) of $500 million in Year 5, a WACC of 1
- What is the 3-year Compound Annual Growth Rate (CAGR)?
- What is the Multiple on Invested Capital (MOIC)?