For Terminal Value we have terms and definitions in 2 topics. The topics are Accounting and Finance.

Terminal Value (Accounting)

when used in a discounted cash flow valuationthe cash flow is projected for each year into the future for a certain number of yearsafter which unique annual cash flows cannot be forecasted with reasonable accuracy. At that pointrather than attempting to forecast the varying cash flow for each individual yearone uses a single value representing the discounted value of all subsequent cash flows. This single value is referred to as the terminal value.When a firm's cash flows grow at a "constant" rate foreverthe present value of those cash flows can be written as: Value = Expected Cash Flow Next Period / (r - g)wherer = Discount rate (Cost of Equity or Cost of Capital) g = Expected growth rate. This "constant" growth rate is called a stable growth rate and cannot be higher than the growth rate of the economy in which the firm operates. While companies can maintain high growth rates for extended periodsthey will all approach "stable growth" at some point in time. When they do approach stable growththe valuation formula above can be used to estimate the "terminal value" of all cash flows beyond.

Terminal Value (Finance)

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.

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