then added to the PV of the free cash flows in the projection period to arrive at an implied enterprise value. If the growth rate in perpetuity is not constant, a multiple-stage terminal value is calculated. The terminal growth rate can be negative, if the company in question is assumed to disappear in the future. Exit Multiple Approach The Exit or Terminal Multiple Approach assumes a business will be sold at the end of the projection period. Valuation analytics are determined for various operating statistics using comparable acquisitions. A frequently used terminal multiple is Enterprise Value/EBITDA or EV/EBITDA. The analysis of comparable acquisitions will indicate an appropriate range of multiples to use. The multiple is then applied to the projected EBITDA in Year N, which is the final year in the projection period. This provides a future value at the end of Year N. The terminal value is then discounted using a factor equal to the number of years in the projection period. If N is the 5th and final year in this period, then the Terminal Value is divided by (1+k)5. The Present Value of the Terminal Value is then added to the PV of the free cash flows in the projection period to arrive at an implied Enterprise Value. Note that if publicly traded comparable company multiples must be used, the resulting implied enterprise value will not reflect a control premium. Depending on the purposes of the valuation, this may not provide an appropriate reference range. Comparison of methodologies There are several important differences between the two approaches. The Perpetuity Growth Model has several inherent characteristics that make it intellectually challenging. Because both the discount rate and growth rate are assumptions, inaccuracies in one or both inputs can provide an improper value. The difference between the two values in the denominator determines the terminal value, and even with appropriate values for both, the denominator may result in a multiplying effect that does not estimate an accurate terminal value. Also, the perpetuity growth rate assumes that free cash flow will continue to grow at a constant rate into perpetuity. Consider that a perpetuity growth rate exceeding the annualized growth of the S&P 500 and/or the U.S. GDP implies that the company's cash flow will outpace and eventually absorb these rather large values. Perhaps the greatest disadvantage to the Perpetuity Growth Model is that it lacks the market-driven analytics employed