Terminal Value (TV)

The terminal value (TV) is the estimated value of an asset at the end of its useful life. It is calculated by discounting the future cash flows of the asset back to the present value. The TV is used in discounted cash flow (DCF) analysis to determine the value of an investment.

The TV is calculated using the following formula:

TV = CFt / (r - g)

where:

• CFt is the cash flow in year t
• r is the discount rate
• g is the growth rate of the cash flows

The discount rate is the rate of return that an investor requires to invest in the asset. The growth rate is the expected rate of growth of the cash flows.

The TV is an important part of DCF analysis because it represents the long-term value of the asset. The TV is used to determine the present value of the asset by discounting the future cash flows back to the present.

The TV is often used to value companies. The TV of a company is the estimated value of the company at the end of its useful life. The TV is used to determine the current value of the company by discounting the future cash flows back to the present.

The TV is a useful tool for valuing assets, but it is important to remember that it is only an estimate. The actual value of an asset may be different from the TV.