What are the two ways to calculate terminal value, and which do you prefer?

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IBPrep · Accepted Answer

(1) Gordon Growth Model (Perpetuity Growth): TV = FCF(n+1) / (WACC − g), where g is the long-term growth rate (typically GDP growth, ~2–3%). (2) Exit Multiple Method: TV = EBITDA(n) × exit multiple (anchored to current trading comps).

What are the two ways to calculate terminal value, and which do you prefer?

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What are the two ways