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
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