Beverly Enterprises owns a nursing home that is currently earning $2.0 million i

Question

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?

A. $1,600,000

B. $1,500,000

C. $1,550,000

D. None of the above

Explanation / Answer

C. $1,550,000

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