ing Starting a commercial real estate division. It has prepared the following fo forecast of free cash flows for this division: (Click on the following icon in order to copy its contents a spreadsheet.) Free Cash Flow Year 1 - $151,000 Year 2 $14,000 Year 3 Year 4 $79,000 $192,000 Assume cash flows after year 4 will grow at 5% per year, forever. If the cost of capital for this division is the continuation value in year 4 for cash flows after year 4? What is the value today of this division? What is the continuation value in year 4 for cash flows after year 4?
ing Starting a commercial real estate division. It has prepared the following fo forecast of free cash flows for this division: (Click on the following icon in order to copy its contents a spreadsheet.) Free Cash Flow Year 1 - $151,000 Year 2 $14,000 Year 3 Year 4 $79,000 $192,000 Assume cash flows after year 4 will grow at 5% per year, forever. If the cost of capital for this division is the continuation value in year 4 for cash flows after year 4? What is the value today of this division? What is the continuation value in year 4 for cash flows after year 4?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:K
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: (Click on the following icon in order to copy its contents into
a spreadsheet.)
Free Cash Flow
Year 1
- $151,000
Year 2
$14,000
Year 3
Year 4
$79,000
$192,000
Assume cash flows after year 4 will grow at 5% per year, forever. If the cost of capital for this division is 13%, what is
the continuation value in year 4 for cash flows after year 4? What is the value today of this division?
What is the continuation value in year 4 for cash flows after year 4?
The continuation value is $ (Round to the nearest dollar.)
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