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 | $124,000 | $11,000 | $98,000 | $248,000 |
Assume cash flows after year 4 will grow at
3%
per year, forever. If the cost of capital for this division is
14%,
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
$nothing.
(Round to the nearest dollar.)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered 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
Survey of Accounting
Authors: Edmonds, old, Mcnair, Tsay
2nd edition
978-0073379555
