11.4 Finding the Terminal Cash Flow

  1. LG6

A project’s terminal cash flow is the cash flow resulting from termination and liquidation of a project at the end of its economic life. It represents the after-tax cash flow, exclusive of operating cash flows, that occurs in the final year of the project. For replacement projects, analysts must take into account the proceeds from both the new asset and the old asset. The proceeds from the sale of the new and the old asset, often called “salvage value,” represent the amount net of any removal costs expected on termination of the project. For expansion types of investment projects, the proceeds from the old asset are zero. Regardless of the project type, a change in new working capital often takes place ...

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