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Bay Properties is considering starting a commercial real estate division. It has prepared the following fiur year forecast of free cash flows for this division.

Year 0 Year 1 Year 2 Year 3 Year 4

Free cash flow -$300,000 $25,000 $22,000 $20,000 $25,000

Assume cash flow after year 4 will grow at 5% per year, forever. If the cost of capital for this division is 12%, what is continuation value in year 4 for cash flows after year 4? Calculate NPV of this project and what is the divisions decision on this project?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92863122

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