Walk me through a DCF: Perpetual Growth or Exit Multiple method?
Which one is most used when walking through a def in an interview? Which method is the interviewer looking for?
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When you say "which method is the interviwer looking for", I can tell you're not framing the question correctly to start off with. Neither method in an absolute sense is preferable to the other. You can use Perpetual Growth when CF's after X years are likely to be growing at a constant rate (usually inflation). You can use Exit Multiples in contexts where steady CF growth might not be a valid assumption (high-growth tech companies) beyond your projected time horizon, and/or where the market has a good sense of acquisition value (most relevant in LBO's where funds must "exit" in realizing the value of their investment) so that market sentiment is incorporated. You might even use both so you can sensitize how much your valuation changes depending on which method you use.
Agreed. If you’re asked “walk me through a DCF” and that’s it, 99% of time they are looking for perpetual growth, UFCF. Also just to note, one is not necessarily preferred over the other, I’ve seen football fields that show TEV ranges for both (of course, using different sensitivies).
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I was referring to when this question is asked in interviews. Yes, I agree on the job, multiples are used pretty frequently (especially in TMT), however, for the purpose of interviews, in my experience, the interviewer will ask you specifically about terminal multiples if that’s what they are looking for.
I am just not sure which one is more common
In real life or for an interview?
Real life - depends on the industry, so unanswerable Interview - the correct answer to give if you get asked "which is more common" is "it depends"
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