Calculate the Terminal Value
Having estimated the free cash flow produced over the forecast period, we need to come up with a reasonable idea of the value of the company's cash flows after that period - when the company has settled into middle-age and maturity. Remember, if we didn't include the value of long-term future cash flows, we would have to assume that the company stopped operating at the end of the five-year projection period.

The trouble is that it gets more difficult to forecast cash flows over time. It's hard enough to forecast cash flows over just five years, never mind over the entire future life of a company. To make the task a little easier, we use a "terminal value" approach that involves making some assumptions about long-term cash flow growth.

Receive interest rate discounts on select new auto refinances & purchases from Wells Fargo Gordon Growth Model
There are several ways to estimate a terminal value of cash flows, but one well-worn method is to value the company as a perpetuity using the Gordon Growth Model. The model uses this formula:

Terminal Value = Final Projected Year Cash Flow X (1+Long-Term Cash Flow Growth Rate) (Discount Rate – Long-Term Cash Flow Growth Rate)

The formula simplifies the practical problem of projecting cash flows far into the future. But keep in mind that the formula rests on the big assumption that the cash flow of the last projected year will stabilize and continue at the same rate forever. This is an average of the growth rates, not one expected to occur every year into perpetuity. Some growth will be higher or lower, but the expectation is that future growth will average the long-term growth assumption.

Returning to the Widget Company, let's assume that the company's cash flows will grow in perpetuity by 4% per year. At first glance, 4% growth rate may seem low. But seen another way, 4% growth represents roughly double the 2% long-term rate of the U.S. economy into eternity.

...Case Study Report The Power of TerminalValue ARCADIAN MICROARRAY TECHNOLOGIES,INC. Contents TOC o 1-3 h z u HYPERLINK l _Toc400235473 1. Introduction PAGEREF _Toc400235473 h 3 HYPERLINK l _Toc400235474 1.1. Object of Transaction PAGEREF _Toc400235474 h 3 HYPERLINK l _Toc400235475 1.2. Buyer Sierra Capital Partners PAGEREF _Toc400235475 h 3 HYPERLINK l _Toc400235476 1.3. Seller Arcadian Microarray Technologies, Inc. PAGEREF _Toc400235476 h 3 HYPERLINK l _Toc400235477 2. Methodology Analysis PAGEREF _Toc400235477 h 4 HYPERLINK l _Toc400235478 2.1. TerminalValue PAGEREF _Toc400235478 h 4 HYPERLINK l _Toc400235479 2.2. Book Value Model PAGEREF _Toc400235479 h 5 HYPERLINK l _Toc400235480 2.3. Liquidation Value Model PAGEREF _Toc400235480 h 6 HYPERLINK l _Toc400235481 2.4. Replacement Value Model PAGEREF _Toc400235481 h 6 HYPERLINK l _Toc400235482 2.5. Market Multiples PAGEREF _Toc400235482 h 6 HYPERLINK l _Toc400235483 2.6. Constant Growth Model PAGEREF _Toc400235483 h 8 HYPERLINK l _Toc400235484 2.6.1. Formula and Explanations PAGEREF _Toc400235484 h 8 HYPERLINK l _Toc400235485 2.6.2. Using Historical Growth Rates and Setting Forecast Horizons PAGEREF _Toc400235485 h 9 HYPERLINK l _Toc400235486 2.6.3. Growth Rate Assumption PAGEREF _Toc400235486 h 9 HYPERLINK l _Toc400235487 2.7. Conclusion Constant Growth Valuation suits Sierra Capital Partner...

...| 2010 |
| Team “TerminalValue” [Kohler - BuSINESS DECISION] |
FIN 553 Spring Term 2010 |
Executive Summary
Both approaches (used to come up with the value of the Kohler Company) are greatly impacted by the assumptions made by both the company and the dissenting shareholders.
The use of the Market approach has shown that the value of the company varies greatly depending on the comparable companies. If Masco (which is the largest comparable company) is included, the value goes to nearly $3.7 B and excluding it causes the value to go down to $1.2 B. Moreover, depending of the discount for lack of liquidity and control, the value of the company could decrease considerably. Then, in the market approach there are two variables that affect the value of the company; comparable peers and the discount for lack of liquidity and control.
In the Free Cash Flow (FCF) approach, the two variables that makes the value diverge is the Beta and the discount (liquidity and control) used. In this specific scenario the Beta impacts the WACC considerably due to the high weight of the cost of equity. For example, a difference of 4 points in the WACC raises the value of the company more than 150% [Table 7].
It is interesting to see that in order to arrive at Kohler’s initial valuation of $58K per share; a 65% discount is needed in both...

...the implications of case Exhibit 1 (Paige Simon’s first task). Based on that exhibit, is terminalvalue (TV) a material component of firm values?
From the exhibit, we can find the PV of five years’ dividends is small part of the market price of the stock. In my opinion, we buy a stock then get dividend periodically, which like buy a bond. The coupon payment is dividend and the face value is terminalvalue. The bond value is determined by the terminalvalue mostly. So the stock price is also determined by terminalvalue. The concept of going concern can explain that Terminalvalue is often higher than the present value of near term cash flows, which means that a company's long-term cash-flow capacity is more important.
2. Drawing on case Exhibit 4 and your own general knowledge, where would the various estimators be appropriate? Where would they be inappropriate? (Simon’s second task)
|Approach |appropriate |inappropriate |
|Book value |Depreciation (accounting) |When the book value is quite different from fair |
| |...

...Journalism 2014
I am a person who has many values (many of them listed below). I am also a person who doesn’t
quickly dismiss the ideas of others and who tries to understand why people value or don’t value
certain things. For me, I feel that everyone paves their own individual path with the ability to alter
it if necessary, so I value qualities closer to inner wholeness, or being one with yourself. If you can
truly accept and understand yourself, I feel like you can do or believe anything. You hold the key to
your own mind and imagination and it’s better for people to understand that so they’re able to
move on in the future. Inner Harmony, Self-Respect and wisdom are definitely the most important
to me because they encourage mental and spiritual growth. I know many people aren’t religious but
spiritual doesn’t always have to be put in that context. I mean it in a more “One with your mind,
one with your body” kind of way. I’m not a person who is god with expressing her feelings through
speech, I like to analyze privately and observe things. I am more of a reserved person unless I’m in
my comfort zone. Being comfortable with yourself could make you feel comfortable any and
everywhere. Values like world peace and equality are definitely important, it’s just that to me,
they’re only possible if EVERYONE in the world is at peace within themselves, and at the rate we’re
traveling, I’m not sure if we’ll get...

...carbohydrate
6) Grams formula for carbohydrate
7) x = grams x multiplied by 4kcal = 1485kcal
8) x = 1485kcal / 4kcal = 371.25grams of carbohydrates
9) Kcal formula for protein
10) x = kcal x / 2700kcal = .20(20% protein into decimal format)
11) x = .20 x 2700kcal = 540kcal of protein
12) Grams formula for protein
13) x = grams x multiplied by 4kcal = 540kcal
14) x = 540kcal / 4kcal = 135grams of protein
15) Kcal formula for fat
16) x = kcal x / 2700kcal = .25(25% fat into decimal format)
17) x = .25 x 2700kcal = 675kcal of fat
18) Grams formula for fat
19) x = grams x multiplied by 9kcal = 675kcal
20) x = 675kcal / 9kcal = 75grams of fat
5. A food label has the following values: Total kcal- 360; Total fat 20gm; Total carb-25 gm. How much protein is in this food?
1) Total kcal = 360, Total fat = 20gm, Total carb = 25gm
2) Fat = 9kcal/g, Carb = 4kcal/g, Protein = 4kcal/g
3) (20g x 9kcal/g) + (25g x 4kcal/g) + (x multiplied by 4kcal/g)
4) 180kcal/g + 100kcal/g + x multiplied by 4 = 360kcal
5) 360kcal – 280kcal/g = 80kcal/g
6) 80kcal/g / 4kcal = 20gm of protein is in this food...

...is a significant investment and upgrade for the plant. The NPV and IRR seem to relay heavily on the terminalvalue of the pipeline. The Japanese technology might be more efficient in the long run than the upgrades. The Merseyside project is much simpler and costs aren’t spread over 3 years.
3. Is Elizabeth Eustace’s treatment of the right-of-way correct in her spreadsheet analysis?
I don’t think it is at all correct to assume theterminalvalue will be $40 million in 15 years. Projecting 15 years out is a very long time to make such an assumption even with a consultant forecast. A lot can happen in 15 years, there could be another a bubble crash and the pipeline could be worth nothing or it could be in a bubble and it would be worth double. Because there isn’t enough information about the demographics of the area, seems like the right-of-way of the pipeline is such a specialized product and that it would be very hard to value.
4. Is it possible to quantify the value of potentially adding the Japanese technology to the Merseyside project? Discuss what the economic impact is from this investment flexibility.
It is possible to quantify the value of being able to add in the technology at a later date. Though it might be hard to give an exact number, but since the Merseyside project has a much faster payback period and more free cash flow early on, this is a...

...> P1 > P4 > P1 > P7 > P6 > P2
3)
The Internal Rate of Return definition is a discount rate that makes the NPV (net present value) of all cash flow from particular project is zero.
The NPV formula is:
where = net cash flow during the period t
= total initial investment
r = discount rate
t= number of periods
Project
P1
P2
P3
P4
P5
P6
P7
P8
IRR
10.87%
6.31%
11.33%
12.33%
11.12%
10.00%
15.26%
11.41%
As the diagram indicating, the rank of projects based on the IRR is like:
P7 > P4 > P8 > P3 > P5 > P1 > P6 > P2
4)
The rank of projects based on the NPV. And the formula is:
where = net cash flow during the period t
= total initial investment
r = discount rate
t= number of periods
a) When r = 8%,
Project
P1
P2
P3
P4
P5
P6
P7
P8
NPV(8%)
258.37
-40.07
1152.42
448.82
396.65
37.04
234.66
474.84
The rank is like:
P3 > P8 > P4 > P5 > P1 > P7 > P6 > P2
b) When r = 10%
Project
P1
P2
P3
P4
P5
P6
P7
P8
NPV(10%)
73.09
-85.45
393.93
228.22
129.70
0
165.4
182.98
According to the diagram shown, the rank is:
P3 > P4 > P8 > P7 > P5 > P1 > P6 > P2
c) When r = 12%
Project
P1
P2
P3
P4
P5
P6
P7
P8
NPV(12%)
-90.08
-128.79
-173.04
30.41
-92.96
-35.71
99.35
-72.25
Based on the diagram, the rank should be:
P7 > P4 > P6 > P1 > P8 > P5 > P2 > P3
When you get cash flows in the far future, like 15 years from now, the discount rate has more impact on the cash value, because is used as denominator ().
So, the different projects have different distribution...

...cash flows generated by Harmonic in years one through seven.
-Model shown in chart below.
• What is the terminalvalue of the company under each scenario?
As you can see in the graph below, the terminalvalue for the company if it takes the equity route is about $106M, where if it takes the debt route its terminalvalue will be about $45M.
• What cash payments will be made by the company at the end of year seven?
As you can see in the graph below, the only cash outflows from the company in year 7 will come from debt financing, with about an $11M outflow from buying back the building from Frank Thomas, as well as about a $6M outflow from paying back the 9% interest loan.
2) At what price must Harmonic repurchase the building from Frank Thomas to produce his required 15% after-tax return?
In order for Frank Thomas to earn his 15% after tax return, Harmonic must buyback the building for just over $11M. The calculations can be seen in the chart below.
3) What proportion of the terminalvalue must be distributed to Comet Capital to produce its required 25% before-tax rate of return?
In order for Comet Capital to produce its 25% before tax return, they must receive about $73.5M terminalvalue. This amount is about 69% of the total terminalvalue at the end of year 7.
4) What...