terminal value


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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

1. In accounting, the salvage value.

2. In finance, the present value of future cash flows.

3. In investing, the value of an investment after a given period of time at a given interest rate. The terminal value is calculated in the same way as compound interest.

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.

References in periodicals archive ?
Investors might consider both annual price changes and terminal value. Therefore, we now analyze combinations of the CPT and the MCPT utility; that is, we look at [CPT.sup.com]([A.sup.c]):= sMCPT([A.sup.c]) + (1 - s)CPT(X) with s [member of] [0, 1] and X = [A.sup.c.sub.T] - [chi].
The terminal values are shown in the Table 2, instrumental values in the Table 3.
Terminal Value = [NOPAT.sub.t+1](1 - g/RONIC)/WACC - g (1)
Rebelo, "A nonpolynomial collocation method for fractional terminal value problems," Journal of Computational and Applied Mathematics, vol.
Zhou, "Optimal risk control and dividend distribution policies for a diffusion model with terminal value," Mathematical and Computer Modelling, vol.
(17) Certain values play an intermediary role and serve as means to achieve terminal values and, are termed as instrumental values.
(2001) operationalize equation (3) using VL forecasts for a five-year forecast horizon plus a terminal value expression that incorporates the Target Stock Price for the present value of residual income beyond the explicit forecast period.
The value after the explicit forecast period is referred to as the Terminal Value. This is generally calculated using the growing perpetuity formula, which assumes that the company's free cash will grow at a constant rate, g, beyond the explicit forecast period (2).
And in most cases, "terminal value" is going to be negative, because the project invested in has run its course and instead of the assets having value for another purpose, you are actually going to have to pay to get rid of them.
The standard approach to estimating the terminal value of the debt and equity assumes the firm reaches a steady state by the terminal date, and computes the terminal values as a FCF perpetuity growing at a constant g, [E.sub.0] [[FCF.sub.T] (1 + g)]/([r.sub.WACC] - g).
Similarly, the relationship between the terminal value of a capped certificate and the terminal value of the underlying asset based on the change in the underlying asset price (without taking into account dividends) with a downside protection of 25% and a capped return of 30% can be represented in Figure 2.

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