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:

Assume cash flows after year 4 will grow at 1% per year, forever. If the cost of capital for this division is 16 %, what is the continuation value in year 4 for cash flows after year 4? What is the value today of this division?

Year 1 Year 2 Year 3 Year 4 Free cash flow $150,000 $11,000 $79,000 $211,000