The value today is $928,283.

12.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 value today of this division?

The value today is $528,283.

The value today is $928,283.

The value today is $228,283.

The value today is $728,283.