cost of capital for this division

31.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:

 

  Year 1 Year 2 Year 3 Year 4
Free cash flow $-122,000 $-9,000 $100,000 $219,000

 

Assume cash flows after year 4 will grow at 3% per year, forever. If the cost of capital for this division is 17%, what is the continuation value in year 4 for cash flows after year 4?

The continuation value is $1,611,214.

The continuation value is $1,601,214.

The continuation value is $611,214.

The continuation value is $1,621,214.