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It is the value of an investment at the end of the period e.g.
Y1 70
Y2 45
Y3 80
WACC = 10%Terminal value would be the total value on Y3. So;
TV = Y1* (1.1)^2 + Y2*(1.1) + Y3 = 214.2
You essentially COMPOUND all the cashflows BEFORE the end of the period, and calculate their FUTURE VALUE. Since Y3 is essentially the current period, no need to compound it.
Hope this helped.
Well terminal value is:
For example you have a project that cost you investment in period of 3 years
For year 1: (15,000)
For year 2: (10.000)
For year 3: ( 5,000)Which can be invested at 10% or cost of capital is 10% either way. Now if i dont invest in year 1, the capital of 15,000 it will be available for 3 years, the investment of 2 years will be available for 2 years and investment of 3 year is available for 1 years. Therefore
Terminal Value =15,000(1+0.10)^3+10,000(1+0.10)^2+5000(1+0.10)^1
The 11ish is applicable where funds will be available for investment at end of the that year.
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it is the Pv of an investment into perpertuity. calulated by
PV oF investment/ discount rate
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