Identify the factors used to   determine the terminal value estimate.

Estimating cash flows | Business & Finance homework help

The factors used to determine the terminal value estimate include the expected growth rate of cash flows in subsequent years, the discount rate applied to future cash flows, and assumptions about the company’s expected lifespan. The terminal value is calculated by taking into account several variables such as the estimated average annual growth rate for future cash flows, or revenue and expenses, after a specified period; a discount rate (which is usually equal to an appropriate cost of capital) that takes into account any risk associated with investing in this company; and estimates of how long this company will continue operating at its current level. These factors are then used to calculate an approximate present value for all expected future cash flows beyond a certain point.