What is the estimated value of Country Point in a proposed spin-off?
a. $144.5 million
b. $162.6 million
c. $178.3 million

Beachwood Builders merged with Country Point Homes on December 31, 1992. Both companies were builders of midscale and luxury homes in their respective markets. In 2010, because of tax considerations and the need to segment the business, Beachwood decided to spin off Country Point, its 218 Part 2 Stock Markets luxury subsidiary, to its shareholders. Beachwood retained Bernheim Securities to value the spin-off of Country Point as of December 31, 2010.

When the books closed on 2010, Beachwood had $140 million in debt outstanding due in 2019 at a coupon rate of 8 percent, which is a spread of 2 percent above the current risk-free rate. Beachwood also had 5 million common shares outstanding. It pays no dividends, has no preferred shareholders, and faces a tax rate of 30 percent. Bernheim is assuming a market risk premium of 11 percent.

The common equity allocated to Country Point for the spin-off was $55.6 million as of December 31, 2010. There was no long-term debt allocated from Beachwood. 

The managing directors in charge of Bernheim€™s construction group, Denzel Johnson and Cara Nguyen, are prepping for the valuation presentation. Ms. Nguyen tells Mr. Johnson that Bernheim estimated Country Point€™s net income at $10 million in 2010, growing $5 million per year through 2014. Based on Ms. Nguyen€™s calculations, Country Point will be worth $223.7 million in 2014. Ms. Nguyen decided to use a cost of equity for Country Point in the valuation equal to its return on equity at the end of 2010 (rounded to the nearest percentage). Ms. Nguyen also gives Mr. Johnson the table she obtained from Beachwood projecting depreciation and capital expenditures ($ in millions):

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2010 2011 2012 2013 2014 $ 6 $ 5 $6 $5 $5 Depreciation Capital expenditures 10 12