Terminal Value
This query is : Resolved
Faiz Ahmed
(Querist)
04 September 2010
What is meant by terminal value of cash inflow in relation to modified internal rate of return method of capital budgeting?
Please explain in clear and simple language.
Please explain in clear and simple language.
04 September 2010
Terminal value can be viewed as the sale value of the business at end of the evaluation period. Also called exit value.
In project evaluations we assume that we start a business with an investment (outflow) and end the business by selling the same (inflow).
Normally terminal value is taken as 8 to 10 times the value of cashflow profit at the end of evaluation period.
In project evaluations we assume that we start a business with an investment (outflow) and end the business by selling the same (inflow).
Normally terminal value is taken as 8 to 10 times the value of cashflow profit at the end of evaluation period.
Faiz Ahmed
(Querist)
04 September 2010
I need answer with relation to MIRR method of capital budgeting.
CMA Ramesh Krishnan
(Expert)
04 September 2010
Terminal value – The value of a asset at sale or realise, typically its par value, or the value of an asset on some specified future valuation date.
04 September 2010
In MIRR, the cash inflows from Year 1 onwards are valued forward to get a terminal value.
So if you make a profit of Rs. 100 at the end of year 1 and your cost of capital is 10% then its terminal value at the end of year 2 is Rs. 110 being 100 + (100 X 10%). Its terminal value at the end of year 3 is Rs. 122.10 and so on and so forth. All cashflows of subsequent year to be valued forward like this and added together to get a gross terminal value.
This way you get one terminal value (end of project term - inflow )and one investment value (zero year - outflow). You can now calculate the MIRR
So if you make a profit of Rs. 100 at the end of year 1 and your cost of capital is 10% then its terminal value at the end of year 2 is Rs. 110 being 100 + (100 X 10%). Its terminal value at the end of year 3 is Rs. 122.10 and so on and so forth. All cashflows of subsequent year to be valued forward like this and added together to get a gross terminal value.
This way you get one terminal value (end of project term - inflow )and one investment value (zero year - outflow). You can now calculate the MIRR
Message likes :
1 times
Faiz Ahmed
(Querist)
04 September 2010
Thnx for clearing my doubt.
You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now
Click here to login now
Similar Resolved Queries
Unanswered Queries
- GST Audit whether Govt Companies are exempt?
- PTRC Show Cause Notice on Email
- Accounting treatment of AMC alongwith the purchase of Laptop
- Unable to File TDS Q2 Return – New TRACES Portal Error
- Condonation Request sec 119(2) b -Enhancement Limit of Leave Exemption prior to AY 2023
- GST Treatment of Purchases with GST Paid where Outward Supplies of Manufactured CattleFeed Exempt
- Not ordinarily resident having partnership income in India and salary in USA is any form to filed be
- EPF ECR NEW RULES Sep 17th 2026
- Issuing of delivery challan by seller of goods
- Taxation of crypto futures in India Fy 2026- 2027
- Expert Help Required for TDS Refund 100000 Through TRACES – AY 2022–23
- IMPORT PURCHASE ENTRY PASSED IN BOOKS OF ACCOUNT
- FAST DS 26 Undisclosed Foreign Asset Disclosure Scheme 2026
- Regime change
- Goods sold but invoice not issued
- Tally: Imported bank entries do not show up in manual reconciliation
- Sales of goods of amount Rs97 lakhs to a party
- Confused About My Career After 12th — Cyber Security, AI or Finance? Need Guidance
- FAST-DS 2026 Under Tax Law - No recourse or support for person declaring via this scheme?
- Guidance Needed: Linking Multiple Form 26QB Payments and Responding to ITD Defaulter Notice
Trending Online Classes
-
DT & Audit (Exam Oriented Fastrack Batch) - For May 26 Exams and onwards Full English
CA Bhanwar Borana & CA Shubham Keswani
Subscribe to Pro
Join an elite circle of professionals
CAclubindia
