Horizon Value & Residual Value
Discuss the similarities and/or differences between (Horizon Value & Residual Value). Include all methods for valuing the terminal value.
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Residual value (also called salvage value) is the scrap value of the plant and equipment. It is the amount a company expects to be able to sell a fixed asset for at the end of its useful life. On the other hand terminal value / horizon value is used to value the firm beyond the period of planning horizon. While valuing a business, we consider a planning horizon period. We estimate the cash flows from the business during the planning horizon and all the cash flows which accrues to the firm after the planning horizon is over is considered as horizon value or terminal value.
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