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At the end of 10 years, Grokster Investments plans to sell its interest in One City...

At the end of 10 years, Grokster Investments plans to sell its interest in One City Tower, an office building in Miami, FL. In year 10 the building is expected to generate an annual cash flow of $27 million that is expected to grow at an annual rate 5% forever. The discount rate for projects such as this is 12%. Calculate the terminal value at the end of the 10th year.

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Answer #1

Cahs flow in Year 10 = $27 million

Growth Rate = 5%

Discount rate = 12%

Terminal Value = CF0(1 + g)/(r - g)

Terminal Value = 27(1.05)/(0.12 - 0.05)

Terminal Value = $405 million

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