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.

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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...

...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...

... 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 terminal...

...Shakeiya Thomas
Mrs. Parker
Journalism
8 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...

...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...

...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 the terminalvalue will be...

...15.00
6.05
7.14
0.91
1.89
6.04
According to the diagram, the rank of projects based on the payback period is like:
P3 > P5 > 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...

...revenues, expenses, profits, and free 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...