An analyst at Wavelength Media has produced the valuation below for the investment committee. It is due to be presented tomorrow. Your job is to review it, not to rebuild it.
The analyst's model
| Input | Value |
|---|---|
| Year-5 free cash flow | $88 M |
| WACC | 12% |
| Terminal growth rate | 13% |
| Terminal value | $99,440 M |
| Forecast horizon | 5 years |
| Mid-year convention | Not applied |
| Net debt | Deducted at book value |
The analyst's note reads: "Terminal value dominates the valuation at roughly 95% of enterprise value, which is normal for a growth business. The model shows substantial upside and I recommend we proceed."
The IC will approve based on this number unless someone objects.
Review the model. Your answer should provide:
State any assumptions you make.
100 points, 60% to pass.
Gordon growth constraint (g < WACC); recompute TV; sanity-check TV share of EV