# Question: Bay Properties is considering starting a commercial real estate division

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 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 thisdivision?

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 thisdivision?

**View Solution:**## Answer to relevant Questions

Your firm would like to evaluate a proposed new operating division. You have forecasted cash flows for this division for the next five years, and have estimated that the cost of capital is 12%.You would like to estimate a ...Procter & Gamble will pay an annual dividend of $0.65 one year from now. Analysts expect this dividend to grow at 12% per year thereafter until the fifth year. After then, growth will level off at 2% per year. According to ...Suppose that in January 2006, Kenneth Cole Productions had sales of $518 million, EBITDA of $55.6 million, excess cash of $100 million, $3 million of debt, and 21 million shares outstanding.a. Using the average enterprise ...Assume that historical returns and future returns are independently and identically distributed and drawn from the same distribution.a. Calculate the 95% confidence intervals for the expected annual return of four different ...Consider two local banks. Bank A has 100 loans outstanding, each for $1 million, that it expects will be repaid today. Each loan has a 5% probability of default, in which case the bank is not repaid anything. The chance of ...Post your question