Question

**Assume that Company A has a WACC of 10% and Company B
has a WACC of 8%. Both companies have a projected year 5 terminal
year EBITDA of $100.0 million, but Company A’s exit multiple is
10.0x and Company B’s exit multiple is 8.0x. Who has the HIGHER
present value of the terminal value?**

Answer #1

Company A's present value of the terminal value is found by
discounting 10.0*$100 million or $1,000 million by 5 yrs at
10%.

This would give you a value of 1000/1.1^{5} = $620.921
million.

Company B's present value of terminal value is found by
discounting 8.0*$100 million or $800 million by 5 yrs at 8% . This
would give you a value of 800/1.089^{5} = $544.5
million.

Hence, **Company A** has HIGHER present value of
the terminal value.

Please do rate me and mention doubts, if any, in the comments section.

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