Exit multiple method
DCFCalculating terminal value by assuming the business is sold at the end of the forecast at a multiple of its final year earnings.
Rather than assuming perpetual growth, this method assumes a sale. Apply a multiple, typically EV/EBITDA in line with where comparable companies trade, to the final forecast year and discount the proceeds back.
Its appeal is that it is grounded in observable market prices, which makes it easy to defend in a room. Its weakness is that it imports the market's current sentiment into what is supposed to be an intrinsic valuation, so a DCF built this way cannot really disagree with the comps.
The multiple should reflect where the business will be at exit, not where it is now. A company growing 25% today will not command a growth multiple once it has matured into its steady state, and using today's multiple embeds a permanent premium the forecast itself says will disappear.
Always back out the growth rate implied by the multiple you have chosen. If a 9.0x exit implies 4% perpetual growth at your WACC, the multiple is not defensible however normal it looks.
Worked example
Final year EBITDA of 150 at a 7.0x exit multiple gives a terminal value of 1,050.
Back the growth out of it: at a 9% WACC and 60 of final year cash flow, 1,050 implies about 3.1% perpetual growth.
That is above euro area nominal GDP, so either the multiple is too generous or the final year cash flow is understated. The cross check is the point of running both methods.