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A project generates $100,000 cash flow per year (similar to a dividend when looking at stocks)....

A project generates $100,000 cash flow per year (similar to a dividend when looking at stocks). The investor thinks the end of year one cash flow will equal $100,000 times 1.03. The investor thinks these cash flows may grow at 3% per year. The investor wants to earn a 13% interest rate on this investment. Compute the possible apartment building value today. [constant growth model }.

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Answer #1

Value today FCFF/(r-g) Here, $ 103,000 =100000*(1+3%) Free cash flows Year 1 Required return (r) Growth rate (g) 13% 3% Value

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