#5

#4" (10pts) Bay Properti following four-year forecast of free cash flows for this division. Show your es is considering starting a commercial real estate division. It has prepared the work. Year 2 $22,000 Year 3 $20,000 Year 4 $30,000 Year O Year 1 $25,000 Free cash $300,000 Assume cash flow 14%, what is continuation value in year 4 for cash flows after year 4205pts) Calculate NPV of this project flow after year 4 will grow at 3% per year, forever. If the cost of capital for this division is and what is the divison's decision on this project? (Spts) #5. Cost of Capital (10 pts),show your work. 1) (4pts) Suppose you estimate that Google's stock has a beta of 1.50 and a beta of UPS is 0.78. If the risk free rate is 2% and you estimate the market expected return to be 8%, calculate the equity cost of capital for Google and UPS. Which company has a higher equity cost of capital? 2) (3pts) You have just graduated with an MBA and have always been a coffee aficionado. During your two years you spent many night in Starbucks (ticker: S8UX) and are wondering whether you might replicate their success in locations where they have not yet expanded. To develop your financial plan, estimate the cost of capital of this opportunity assuming a risk free rate of 2% and a market return of 6%. (Check Yahoo finance for beta information: Assume Starbuck has no debt): Show your work