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annual cash flow

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Beverly Enterprises owns a nursing home that is currently earning $2.0 million in cash flow on an annual basis, but this amount is expected to drop in the future. The nursing home has a book value of $20 million, a replacement cost of $40 million, and a current sale value of $10 million. If Beverly Enterprises has a cost of capital equal to 15 percent, at what value of annual cash flow would Beverly Enterprises be likely to sell the nursing home?

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Solution Preview

PV of annual cash flows = annual cash flow / cost of capital

= $2M / ...

Solution Summary

The annual cash flow is investigated.

$2.19