Term Value

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  • Terminal ValueThe tail the wags the dog?


    Approaches for estimating terminal valueIf you are doing an intrinsic valuation, which of the following is never an appropriate way to estimate terminal value?Liquidation valueStable growth model (assume stable growth perpetuity)A growing annuity (say 30 years after your terminal year)Exit multiple


    Terminal value: No growthYou are estimating the terminal value for a firm with $ 100 million in after-tax operating income (and after-tax cash flow) with no growth expected in perpetuity. It has a cost of capital of 10%. Estimate the terminal value.


    Terminal Value: With growthNow assume that you expect the firm to generate 2% in growth rate forever. What will happen to the terminal value?It will go upIt will go downIt will not changeNone of the aboveAny of the above