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Category > Accounting Posted 17 May 2017 My Price 5.00

Bay Properties is considering starting a commercial real estate division.

Bay Properties is considering starting a commercial real estate division. It has prepared the fol- lowing four-year forecast of free cash flows for this division:

 

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?

Answers

Alpha Geek
(8)
Status NEW Posted 17 May 2017 02:05 PM My Price 5.00

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file 1495029798-Answer.docx preview (136 words )
B-----------ay -----------Pro-----------per-----------tie-----------s i-----------s c-----------ons-----------ide-----------rin-----------g s-----------tar-----------tin-----------g a----------- co-----------mme-----------rci-----------al -----------rea-----------l e-----------sta-----------te -----------div-----------isi-----------on.----------- It----------- ha-----------s p-----------rep-----------are-----------d t-----------he -----------fol------------ l-----------owi-----------ng -----------fou-----------r-y-----------ear----------- fo-----------rec-----------ast----------- of----------- fr-----------ee -----------cas-----------h f-----------low-----------s f-----------or -----------thi-----------s d-----------ivi-----------sio-----------n: ----------- Ye-----------ar -----------1 Y-----------ear----------- 2 -----------Yea-----------r 3----------- Ye-----------ar -----------4 -----------Fre-----------e C-----------ash----------- Fl-----------ow ------------ $-----------185-----------,00-----------0 $-----------12,-----------000----------- $9-----------9,0-----------00 -----------$24-----------0,0-----------00 ----------- As-----------sum-----------e c-----------ash----------- fl-----------ows----------- af-----------ter----------- ye-----------ar -----------4 w-----------ill----------- gr-----------ow -----------at -----------3% -----------per----------- ye-----------ar,----------- fo-----------rev-----------er.----------- If----------- th-----------e c-----------ost----------- of----------- ca-----------pit-----------al -----------for----------- th-----------is -----------div-----------isi-----------on -----------is -----------14%-----------, w-----------hat----------- is----------- th-----------e c-----------ont-----------inu-----------ati-----------on -----------val-----------ue -----------in -----------yea-----------r 4----------- fo-----------r c-----------ash----------- fl-----------ows----------- af-----------ter----------- ye-----------ar -----------4?
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