Answered step by step
Verified Expert Solution
Question
1 Approved Answer
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: Year
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:
Year 1 | Year 2 | Year 3 | Year 4 | |
Free cash flow | -114,000 | 10,000 | 86,000 | 200,000 |
Assume cash flows after year 4 will grow at 3% per year, forever. If the cost of capital for this division is 13%, what is the continuation value in year 4 for cash flows after year 4? (i.e., what is the present value as of year 4 of all the free cash flows that will occur in year 5 and beyond?)
1,860,000 | ||
2,000,000 | ||
2,060,000 | ||
2,100,000 | ||
2,180,000 |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started