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A. Cash flows for Go-Van X and Go-Van Y are provided below. Assume the required rate of return for both machines is 12%. (3 marks)
A. Cash flows for Go-Van X and Go-Van Y are provided below. Assume the required rate of return for both machines is 12%. (3 marks) Year 0 1 2 NPV ? Go-Van X Go-Van Y -$800 -$800 $350 $375 $350 $395 Which machine will you choose if they are considered mutually exclusive? B. Bay Properties is considering starting a commercial real estate division. It has prepared the following four-year forecast of free cash flows for this division: (4 marks) Year 1 Year 2 Year 3 Year 4 Free cash flow -$185,000 +$ 12,000 +$99,000 +$240,000 Assume cash flows after year 4 will grow at 3% per year, forever. If the cost of capital for this division is 14%. 1. What is the continuation value in year 4 for cash flows after year 4? II. What is the value today of this division
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