About Horizon Value Calculator (Formula)
The Horizon Value Calculator is a tool used to determine the horizon value of an investment or cash flow based on certain parameters. This calculator is commonly used in financial analysis and investment planning to assess the potential value of an investment over a specific time period.
The formula used to calculate the horizon value is:
HV = ACF / (RR – GR)
where:
- HV represents the horizon value.
- ACF denotes the Annual Cash Flow, which is the cash flow generated by the investment on an annual basis.
- RR stands for the Required Return, which is the minimum rate of return required by an investor for the investment to be considered worthwhile.
- GR represents the Growth Rate, which is the expected annual growth rate of the cash flow.
The formula indicates that the horizon value is determined by dividing the Annual Cash Flow by the difference between the Required Return and the Growth Rate. It essentially represents the value that the investment is expected to reach at the end of the investment horizon.
By utilizing the Horizon Value Calculator, you can conveniently estimate the potential value of an investment or cash flow over a specific time frame. It allows you to input the necessary values of the Annual Cash Flow, Required Return, and Growth Rate, and then calculates the horizon value based on the provided information.
It is important to note that the units of the Annual Cash Flow should match the desired currency (e.g., dollars, euros, etc.). Additionally, the Required Return and Growth Rate should be entered in decimal form or as percentages, depending on the convention being used.
The Horizon Value Calculator simplifies the calculation process and assists in financial decision-making by providing an estimate of the future value of an investment. It is particularly useful for analyzing long-term investments and determining their potential profitability.