Definition for : Residual value

Evaluation of any investment project entails forecasting not only all cash flows over a given period with an Explicit forecast period, but also the residual Value beyond that horizon. Residual Value is the expected Value of the Assets at the end of their life, in current Values. Although the discounted (see Discounting) residual Value is frequently very low since it is very far off in time, it should not be neglected. Its Book value is generally zero, but its economic Value may be quite significant since accounting Depreciation may differ from economic Depreciation. The residual Value reflects the flows extending beyond the explicit Investment horizon, and on into infinity. Residual Value is also called Salvage value.

(See Chapters Chapter 29 The cost of capital and Chapter 32 Capital structure and the theory of perfect capital markets of the Vernimmen)

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