Exit Multiple / Exit Rate Terminal Value Calculator
Calculate the terminal value of an investment using the exit multiple method, then discount it back to present value using a discount rate and holding period.
How to use this tool
- Enter exit year ebitda, exit ebitda multiple, discount rate (wacc) and holding period in the fields above.
- Results update instantly as you type — or click Calculate.
- Read your terminal value and the full breakdown beneath it.
⚠ This tool provides general estimates for education only and is not financial, tax or legal advice. Figures may not reflect your situation — verify with a qualified professional.
Formula
Terminal Value: TV = EBITDAexit × Exit Multiple
Present Value: PV(TV) = TV / (1 + r)n
where r is the discount rate and n is the holding period in years.
How it works
The exit multiple method estimates terminal value by applying an expected trading multiple (typically EV/EBITDA) to the projected EBITDA in the final forecast year, assuming the business is sold or valued at that point. The resulting terminal value is then discounted back to the present using the weighted average cost of capital (WACC). This approach is common in leveraged buyout (LBO) and DCF analysis where a comparable-company multiple anchors the exit assumption.
Worked example
5-year LBO exit at 8x EBITDA
- Exit year EBITDA = $10M; Exit multiple = 8x
- Terminal Value = $10M × 8 = $80M
- Discount rate = 10%; Holding period = 5 years
- Discount factor = 1 / (1.10)^5 = 1 / 1.61051 = 0.6209
- PV of Terminal Value = $80M × 0.6209 = $49.67M
Terminal Value = $80M; PV of Terminal Value = $49.67M
Common mistakes to avoid
- Applying the exit multiple to the current-year EBITDA rather than the projected exit-year EBITDA, which understates terminal value if the business grows during the holding period.
- Discounting the terminal value using a discount rate that does not match the risk profile of the investment — using WACC for an all-equity projection or equity cost of capital for a levered buyout produces incorrect PV(TV).
- Treating the exit multiple assumption as objective when it is typically derived from current comparable-company trading multiples, which may compress or expand by the exit date.
Key terms
- What is an exit multiple?
- An exit multiple is the EBITDA (or revenue) multiple at which an investor expects to sell the business at the end of the holding period, benchmarked against comparable public company or transaction multiples.
- How is exit multiple different from Gordon Growth Model?
- The Gordon Growth Model derives terminal value from a perpetuity growth assumption, while the exit multiple method anchors it to current market valuations through comparable multiples.
- What discount rate should I use?
- Use the Weighted Average Cost of Capital (WACC) for DCF analysis, or the required equity return for equity-only models such as an LBO.
- Why discount the terminal value?
- The terminal value represents the estimated exit price at a future date; discounting converts it to today's dollars, making it comparable to current investment costs.
Frequently asked questions
- How do analysts choose the exit multiple?
- The exit multiple is usually derived from current EV/EBITDA trading multiples of comparable public companies, sometimes with a discount for execution risk or a premium for synergies if a strategic buyer is assumed.
- What is the difference between the exit multiple method and the Gordon Growth Model for terminal value?
- The exit multiple approach anchors terminal value to market comparables. The Gordon Growth Model uses a perpetual growth rate (g) and is more sensitive to the assumed long-term growth rate.
- Should the discount rate used for PV(TV) match the project's WACC?
- Yes, for consistency. Use the same discount rate applied to interim cash flows. Using a different rate for the terminal value creates an internal inconsistency in the DCF.