Certified Valuation Analyst (CVA) Practice Exam 2025 - Free CVA Practice Questions and Study Guide

The terminal value represents the business's value at the end of a forecast period, capturing the value of its expected cash flows into perpetuity. To calculate terminal value, methods such as the Gordon Growth Model or the Exit Multiple Method can be applied, depending on the cash flow projections and growth expectations.

In this scenario, the selection of $488,750 indicates that the calculation reflects either a reasonable growth rate applied to the projected stable cash flows or a chosen multiple that accurately corresponds with industry standards and reflects the company's future performance. It suggests that the future cash flows beyond the projection period are estimated to continue at a constant growth rate or are valued at a suitable market multiple.

This attention to the growth rates and cash flow stability is crucial, as it helps ensure that the derived terminal value remains aligned with long-term forecasts and market conditions. Therefore, the selected terminal value of $488,750 represents a well-supported conclusion based on the company's financial outlook and valuation methods applied.