Level 4: Valuation · Exercise 46 of 60 · Pro

Implied exit multiple and implied growth

A financial modeling exercise from Modeldrill. Solve it with a live spreadsheet grid in your browser, with Fill right and Fill down, and it is checked the moment you submit.

The task

Cross-check the two terminal value methods. Fill the terminal value by perpetual growth (B9: final-year free cash flow grown once, divided by rate less growth) and the exit multiple it implies (B10: that value over final-year EBITDA). Then fill the terminal value by exit multiple (B11) and the perpetual growth rate it implies (B12: rearrange the growth formula; the answer is (terminal value times rate less cash flow) divided by (terminal value plus cash flow)).

What this exercise teaches

Each method implies the other one's key input. If a 2.5% growth rate implies a multiple far above where peers trade, or an 8x multiple implies growth above the economy, one of the assumptions is off. Presenting both is standard practice.

A hint if you get stuck

Start from TV = CF x (1 + g) / (r - g). Multiply both sides by (r - g), collect the terms with g on one side, and solve for g.