Terminal Value, Growth, and Inflation: Some Practical Solutions

44 Pages Posted: 18 Apr 2012 Last revised: 20 Feb 2015

See all articles by Fabio Buttignon

Fabio Buttignon

University of Padua - Department of Economics and Management

Date Written: February 20, 2015

Abstract

Terminal or continuing value (CV) is a key element in calculating the value of firm capital in any income-based valuation model. This paper focuses on calculating CV in the context of a firm operating as a going concern, highlighting some of the problems associated with the treatment of growth and inflation, which, although investigated in the literature, are not generally dealt with using sufficiently in-depth analysis. The effect of inflation on forecasted income and cash flows is examined, emphasizing issues that can have a significant impact on value, even in presence of a low inflation rate, such as that employed in CV estimation. Situations are introduced where the impact of inflation can be distinguished and therefore require different measures, followed by a discussion of their degree of realism. Simplified procedures within these situations are indicated that properly consider inflation and therefore lead to an internally consistent calculation of CV.

Keywords: Terminal Value, Valuation, Growth, Inflation, DCF, WACC, ROIC

JEL Classification: G30, G31, G32, G34

Suggested Citation

Buttignon, Fabio, Terminal Value, Growth, and Inflation: Some Practical Solutions (February 20, 2015). Available at SSRN: https://ssrn.com/abstract=2041289 or http://dx.doi.org/10.2139/ssrn.2041289

Fabio Buttignon (Contact Author)

University of Padua - Department of Economics and Management ( email )

via Del Santo 33
Padova, 35123
Italy

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
437
Abstract Views
1,667
Rank
125,034
PlumX Metrics