Financial Glossary
Terminal Cash Flow
Terminal cash flow is the net cash a project or investment generates in its final period when it is wound down or sold. It typically includes the after-tax proceeds from selling assets, any tax effects from gains or losses versus book value, and the recovery of working capital that was tied up during the project. It is a key input in capital-budgeting analyses such as net present value.
Problem & Application
When a real-estate investor models a property hold or a business evaluates buying equipment, terminal cash flow captures the lump of cash that comes back at the exit. Ignoring the tax hit on a sale, or forgetting recovered working capital, can make a deal look better or worse than it really is. Getting this final-period figure right often swings whether an investment clears your required return.
In Short
Terminal cash flow accounts for the money that comes back when an investment ends, and it can make or break the return on a multi-year project.