Enter the annual cash flow beyond a certain time, the required return, and the growth rate to determine the horizon value.

Horizon Value Formula

The following formula is used to calculate a horizon value. 

HV = ACF / (RR - GR)
  • Where HV is the horizon value
  • ACF is the annual cash flow beyond a certain time
  • RR is the required rate of return
  • GR is the growth rate

To calculate horizon value, divide the annual cash flow by the difference between the required rate of return by the growth rate.

Horizon Value Definition

A horizon value is the expected value of a security or investment at a future date.

Horizon Value Example

How to calculate a horizon value?

  1. First, determine the annual cash flow.

    This will be the assumed cash flow for the foreseeable future. For this example, this value is $40,000.00

  2. Next, determine the required return.

    For this example the required return is .40 or 40%.

  3. Next, determine the growth rate.

    The growth rate for this example is .20 or 20%.

  4. Finally, calculate the horizon value.

    HV = ( $40,000.00 / (.40-.20) ) = $200,000.00

FAQ

What is a horizon value?

A horizon value, also known as a terminal value, is the value of a security or asset at some future date.

What is horizon value used for?

The horizon value is used for cash flow models and analysis.