Terminal value (finance)
Forecasting results beyond such a period is impractical and exposes such projections to a variety of risks limiting their validity, primarily the great uncertainty involved in predicting industry and macroeconomic conditions beyond a few years.The Exit or Terminal Multiple Approach assumes a business will be sold at the end of the projection period.Note that if publicly traded comparable company multiples must be used, the resulting implied enterprise value will not reflect a control premium.Perhaps the greatest disadvantage to the Perpetuity Growth Model is that it lacks the market-driven analytics employed in the Exit Multiple Approach.Such analytics result in a terminal value based on operating statistics present in a proven market for similar transactions.This provides a certain level of confidence that the valuation accurately depicts how the market would value the company in reality.In practice, academics tend to use the Perpetuity Growth Model, while investment bankers favor the Exit Multiple approach.