After-tax free cash flow

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Company is purchasing two plots of land in effort to expand its retail beverage empire. They will pay $1.6 million for the first plot of land, which they view as a fair market price. The property is expected to generate incremental free cash flow for company starting in one year and growing at 3% forever. The effective annual discount rate is 8%. The second property is identical to the first property in every way. However, the second property is owned by the local public school trust that is prohibited by law from selling the property. Instead, they have agreed to lease the property to the company for 99 years in exchange for a lump sum payment today. At the end of the 99 years, the land will revert to the school district at no cost to either party.

What after-tax free cash flow does the COmpany forecast the first property will generate in the first year?

Reference no: EM133076665

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