Ibragimov R.G.Russian Presidential Academy of National Economy and Public Administration, Moscow, Russian Federation ibrauf@rambler.ru
Importance The article discusses methodological aspects of calculating the terminal component for business appraisal and evaluation of the investment project efficiency using the Discounted Cash Flow method. Objectives The research aims at elaborating and substantiating methodological recommendations to set up a financial model for the terminal component calculation. Methods I used a formalized mathematical framework and computer modeling to examine the nexus and quantitative relationships between structural components of the terminal assessment in line with their economic substance. Results Whereas financials of the last period of the forecasting horizon and the post-forecast period assumptions are inconsistent, it may result in significant errors. To avoid them, it is advisable to set a terminal component on the basis of the cash flow of the first post-forecast year estimated explicitly, operating profit of the last year of the forecasting horizon, growth rate and return on investment in the post-forecast period. Conclusions and Relevance Uncontroversial calculation of the terminal component is one of the key steps for evaluation through the Discounted Cash Flow method. Results may be regarded as sound and reliable if forecasted data and variables of the continuously increasing rent model are correlated. The results are of practical significance for setting up financial models of business appraisal and analysis of the investment project efficiency.
Keywords: evaluation, terminal assessment, cyclicality, iteration solution, consistency, model
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