Question
Hudson 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:
Hudson 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 | -$9,000 | $87,000 | $164,000 |
Assume cash flows after year 4 will grow at 1% 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?
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
Personal Finance
Authors: Thomas Garman, Raymond Forgue
12th edition
9781305176409, 1133595839, 1305176405, 978-1133595830
