Monte Carlo DCF: Stochastic WACC & Growth Valuation

A single-point DCF answer pretends WACC and growth are known with certainty. They never are. This runs thousands of valuations across the genuine uncertainty in both, and shows you the actual distribution, not a false-precision point estimate.

How To Use This Model

Reading This Tool

Enter base free cash flow, expected growth and WACC with their uncertainty (standard deviation), and terminal growth.

1,000 simulations draw growth and WACC from normal distributions each run, computing a full DCF each time. The resulting spread is the honest valuation range, not the single number a static model implies.

DCF & Uncertainty Inputs

Current Year Free Cash Flow $100M

Expected Annual Growth Rate 6.0%

Growth Rate Uncertainty (Std. Dev.) 3.0%

Expected WACC 9.0%

WACC Uncertainty (Std. Dev.) 2.0%

Terminal Growth Rate 2.5%

Explicit Projection Years 5

1,000 simulations run entirely in your browser. WACC is floored just above the terminal growth rate each run to keep the Gordon Growth terminal value formula well-defined.

Valuation Distribution

Median Simulated Valuation

$0M

10th Percentile

$0M

90th Percentile

$0M

Distribution Of Simulated Valuations

Stochastic Valuation Modeling

The Core Formula

Value = ∑_t=1^T FCF_t/(1+WACC)^t + TV/(1+WACC)^T
TV = FCF_T(1+g)/(WACC−g)
Each simulation draws WACC ~ N(μ_WACC,σ_WACC), growth ~ N(μ_g,σ_g)

Because the terminal value's denominator is (WACC−g), and WACC is randomly drawn each simulation, values occasionally spike sharply when a simulation happens to draw a WACC very close to the terminal growth rate, a structural feature of the Gordon Growth model, not a coding artifact.

When To Actually Use This Model

Presenting a valuation range to an investment committee instead of a single number that implies false precision.
Teaching Monte Carlo simulation applied to corporate valuation in a corporate finance or valuation course.
Stress-testing how sensitive a deal valuation actually is to WACC and growth assumption uncertainty before negotiating a price.
Communicating valuation risk to stakeholders who might otherwise anchor too heavily on a single base-case number.

Key Assumptions & Limitations

Assumes WACC and growth are normally distributed and independently drawn; in reality they are often correlated and non-normal.
Uses a single-stage explicit growth rate rather than a fading, multi-stage growth path many practitioners prefer.
The Gordon Growth terminal value is highly sensitive to the WACC-minus-growth spread, a core, well-known limitation of this valuation approach generally.
This model does not simulate cash flow volatility directly, only the discount rate and growth assumptions that translate a single cash flow forecast into value.

Foundational Reference

Copeland, T., Koller, T., & Murrin, J. (2000). Valuation: Measuring and Managing the Value of Companies (3rd ed.). Wiley.

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