# 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. Bloomberg Financial Dictionary

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The assumed value of a business at the end of a forecasting period, usually after 10 years of projected earnings.

### Look at other dictionaries:

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• terminal value — future value (or terminal value) The value at some future point in time of a present amount of money, or a series of payments, evaluated at the appropriate interest (growth) rate …   Black's law dictionary

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• terminal value — TV The value of an investment at the end of an investment period taking into account a specified rate of interest over the period. The formula is the same as that for compound interest, i.e. TV = P(1 + r)t , where TV is the final amount at the… …   Accounting dictionary

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