1. What is Horizon Project Value?

Horizon Project Value represents the total value of a project or investment, combining the Net Present Value (NPV) of cash flows during the projection period with the Terminal Value representing the value beyond the projection horizon.

2. How Does the Calculator Work?

The calculator uses the Horizon Project Value formula:

Where:

• \( \text{NPV} \) — Net Present Value of projected cash flows ($)
• \( \text{Terminal Value} \) — Value beyond the projection period ($)

Explanation: This approach combines the value generated during the explicit forecast period (NPV) with the continuing value beyond that period (Terminal Value) to provide a comprehensive valuation of long-term projects.

3. Importance of Horizon Project Value

Details: Horizon Project Value is crucial for investment analysis, capital budgeting, and strategic decision-making. It provides a complete picture of a project's potential by accounting for both near-term cash flows and long-term value creation.

4. Using the Calculator

Tips: Enter the NPV and Terminal Value in dollars. Both values should be positive numbers representing the present value amounts.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between NPV and Terminal Value?
A: NPV captures the value of cash flows during the explicit forecast period (typically 5-10 years), while Terminal Value represents the value beyond that period, often calculated using perpetuity growth or exit multiple methods.

Q2: When is Horizon Project Value typically used?
A: This valuation approach is commonly used in corporate finance, private equity, venture capital, and for evaluating long-term infrastructure projects or business acquisitions.

Q3: How is Terminal Value calculated?
A: Terminal Value is typically calculated using either the Perpetuity Growth Method (Gordon Growth Model) or the Exit Multiple Method, both of which estimate the continuing value beyond the projection period.

Q4: What are the limitations of this approach?
A: The accuracy depends heavily on the assumptions used to calculate both NPV and Terminal Value. Small changes in discount rates, growth assumptions, or terminal multiples can significantly impact the result.

Q5: Should this value be used as the final investment decision metric?
A: While Horizon Project Value provides important information, it should be considered alongside other metrics like IRR, payback period, and risk analysis to make comprehensive investment decisions.