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Unformatted text preview: and there are a number of ways to estimate this value. The terminal value can represent a large portion of the valuation. The terminal value of a piece of manufacturing equipment at the end of its useful life is its salvage value, typically less than 10% of the present value. In contrast, the terminal value associated with a business often is more than 50% of the total present value. For this reason, the terminal value calculation often is critical in performing a valuation. The terminal value can be calculated either based on the value if liquidated or based on the value of the firm as an ongoing concern. A high-quality estimate of terminal value is critical because it often accounts for a large percentage of the total value of the company in a discounted cash flow valuation. The higher the growth rate of cash flows, the higher is the terminal value of the project. A project where cash flows level off in time will have a much smaller terminal value....
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This note was uploaded on 10/15/2011 for the course FIN 550 taught by Professor Smith during the Spring '11 term at Berklee.
- Spring '11