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You are reviewing a valuation for a mid-sized B2B software company that just closed its latest quarter and is preparing for a potential sale process. Management has given you a five-year operating forecast and wants to understand how sensitive the implied equity value is to the discount rate and terminal growth assumptions. You have no debt, no preferred stock, and you are valuing the business in USD on a free cash flow basis.
| Metric | Value |
|---|---|
| Current year free cash flow | $12,000,000 |
| Year 1 free cash flow growth | 18% |
| Year 2 free cash flow growth | 15% |
| Year 3 free cash flow growth | 12% |
| Year 4 free cash flow growth | 10% |
| Year 5 free cash flow growth | 8% |
| Discount rate (WACC) | 11% |
| Terminal growth rate | 3% |
| Cash and equivalents | $25,000,000 |
| Debt | $0 |
How would you build the DCF, calculate the enterprise value and equity value, and explain which assumptions matter most? Walk me through how the valuation changes if WACC moves to 10% or 12%, and if terminal growth moves to 2% or 4%.