Question
Question 3 (Total 7 marks) A. Cash flows for Go-Van X and Go-Van Y are provided below. Assume the required rate of return for both
Question 3 (Total 7 marks)
A. Cash flows for Go-Van X and Go-Van Y are provided below. Assume the required rate of return for both machines is 12%. (3 marks)
| Year | 0 | 1 | 2 | NPV |
| Go-Van X | -$800 | $350 | $350 | ? |
| Go-Van Y | -$800 | $375 | $395 | ? |
Which machine will you choose if they are considered mutually exclusive?
B.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: (4 marks)
| Year 1 | Year 2 | Year 3 | Year 4 | |
| Free cash flow | $185,000 | +$12,000 | +$99,000 | +$240,000 |
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?
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
Fundamentals Of Law For Health Informatics And Information Management
Authors: Melanie Brodnik, LaurieRinehart-Thompson, Rebecca Reynolds
3rd Edition
9781584265306
