Bay Properties is considering starting a commercial real estate division. It has prepared the followingfour-year forecast of
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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:
Free cash flow
Year 1−$166,000
Year 2$11,000
Year 3 $75,000
Year 4$182,000
Assume cash flows after year 4 will grow at 5% per year, forever. If the cost of capital for this division is 12%, what is the continuation value in year 4 for cash flows after year 4? What is the value today of this division?
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
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