Having made dramatic improvement to the NAU Bookstore, Louie is looking to sell the Bookstore to an outside management company. In order to name a price, Louie needs to determine the value of the Bookstore with his improvements.
His analysis shows that FCF will be $100,000 next year, and Louie expects that to grow at 10% for each of the following two years due to his improvements.
After year three, Louie forecasts that the FCF will grow at a constant rate of 3% forever.
Under Louie's management the bookstore paid off all their debt. What is the value of the Bookstore assuming the investor's cost of capital is 12%?