Terminal value
The value of a bond at maturity, typically its par value, or the value of an asset (or an entire firm) on some specified future valuation date. Usually, a perpetuity formula is used. For example, suppose we forecast cash flows through year 10. We make an assumption that year 11 and beyond will be no growth (except for inflation). If the cash flow forecast for year 11 is 100, the firm's discount rate is 12%, and inflation is expected to be 2%, we use the formula V10 = CF11/(disc rate-inflation). Hence, the value is 100/(0.12 - 0.02) that is 1,000. This cash flow needs to be brought back to present value using the formula 1000/(1.12)10, which is 321.97. Note the importance of the inflation assumption.
| terminal value The dollar value of an asset at a specific future time. For example, a $1,000 certificate of deposit that earns an annual return of 9% has a terminal value of $1,539 in five years. |
terminal value
The remaining value of property at the end of a certain designated period.
Terminal Value (TV)
What Does Terminal Value (TV) Mean?
The value of an investment at the end of a period, taking into account a specified rate of interest.
Investopedia explains Terminal Value (TV)
The formula for calculating terminal value is the same as that for compound interest:
Where TV = total amount, P = principal amount, r = interest rate, t = period of time.
Related Terms:
• Amortization
• Asset
• Depreciation
• Par Value
• Present Value
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