Question
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 | $144,000 | $15,000 | $100,000 | $153,000 |
Assume cash flows after year 4 will grow at 2% per year, forever. If the cost of capital for this division is 17%,
what is the continuation value in year 4 for cash flows after year 4? What is the value today of this division?
What is the continuation value in year 4 for cash flows after year 4?
The continuation value is
$1040400. (this is correct)
What is the value today of this division?
The value today is
$__________
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Investments An Introduction
Authors: Herbert B Mayo
10th Edition
0538452099, 9780538452090
