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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 -157,000
Year 2 10,000
Year 3 $77,000
Year 4 $216,000
Assume cash flows after year 4 will grow at 4 % per year, forever. If the cost of capital for this division is 15%, what is the continuation value in year 4 for cash flows after year 4? What is the value today of this division?
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