If you use an exit multiple to estimate the terminal value of a set of cash flows or dividends, to what extent does the multiple you choose have to match the type of cash flows in the prior discrete years?
For example, you can value years 1-4 using DDM and then using a P/E multiple to estimate the terminal value. However, the discrete years are solely based on dividends while the terminal is based on total earnings, does this matter? I can’t think of any mutliple of dividends that you might use. I realize you shouldn’t use, say, EBITDA bc then you have a difference in equity and total firm cash flows.
Another example, say you use FCFF to value a firm, would you have to use a mutliple of FCFF or can you use an EBITDA multiple even though it’s not the exact same cash flow measure?
Using a GGM seems cleaner bc you are using the exact same measure of cash flows as the prior years in order to determine the terminal value.