The net cash flows of Advantage Leasing for the next 3 years are $42,000, $49,000 and $64,000 respectively, after which the grow

Question

Feliz

1 month ago

8

The net cash flows of Advantage Leasing for the next 3 years are $42,000, $49,000 and $64,000 respectively, after which the grow

th rate will be a constant 2% with a WACC of 8%. What is the present value of the terminal value

Business

2 answers:

Scilla [3.8K] · Answer 1 · 2026-03-29T10:10:30+03:00

The present value of the terminal value amounts to $863,689.48. The terminal value is calculated using the cash flows from the third year, which is $64,000. The growth rate for cash flows is set at 2% indefinitely, while the WACC is stated to be 8%. The formula used is Terminal value = Cash flows at year three * (1 + g) / (WACC - g), resulting in a terminal value of $1,088,000. To find the present value of this terminal cash flow, we multiply the terminal value by the discount factor for year 3.

soldi70 [3.6K] · Answer 2 · 2026-03-29T10:08:48+03:00

The present value of the terminal value is calculated to be $863,689.48. Terminal value refers to the worth of an asset at a future date, specifically the value at the end of the third year. The relevant formula is Terminal Value = (Last cash flow X (1 + Growth rate)) / (Required return - growth return). By substituting the years' values into this formula, the terminal value is arrived at as $1,088,000. Subsequently, to obtain the present value, the terminal value must be discounted back to the current value.