Asked by Landon Johnson on Jun 04, 2024
Verified
In merger analysis, a terminal value represents:
A) the estimated value of the target company exactly three years in the future.
B) the book value of the target's assets at the end of the period of cash flow estimation.
C) the target's value after a period of detailed cash flow estimation, generally assuming it will grow at a constant rate indefinitely.
D) the net income of the target company during its last full year prior to acquisition.
E) None of the above describes the terminal value concept.
Terminal Value
The estimated value of a business or project beyond the forecast period when future cash flows can be assumed to grow at a steady rate.
Cash Flow Estimation
The process of forecasting the inflow and outflow of cash for a business, project, or investment over a specified period, crucial for budgeting and financial planning.
Constant Rate
A fixed rate at which something occurs, such as growth or decline, over a particular period of time.
- Acquire an understanding of how value is produced in the context of mergers and the approaches used to evaluate it.
Verified Answer
MY
MAYRA YANEZJun 10, 2024
Final Answer :
C
Explanation :
Terminal value represents the estimated value of a company beyond the projection period, assuming it will grow at a constant rate indefinitely. It is typically calculated at the end of a period of detailed cash flow estimation. Therefore, option C is the correct answer.
Learning Objectives
- Acquire an understanding of how value is produced in the context of mergers and the approaches used to evaluate it.