Question: Consider the table given below to answer the following question. The long-run growth rate is projected at 5% and discount rate is 10%. year 1
Consider the table given below to answer the following question. The long-run growth rate is projected at 5% and discount rate is 10%.
| year | 1 | 2 | 3 | 4 | 5 | 6 | 7 | |
| Asset Value | 14.00 | 15.54 | 17.25 | 19.15 | 20.68 | 22.33 | 24.12 | 2 |
| Earnings | 1.54 | 1.71 | 1.90 | 2.11 | 2.27 | 2.34 | 2.41 | |
| Net Investment | 1.54 | 1.71 | 1.90 | 1.53 | 1.65 | 1.79 | 1.21 | |
| Free Cash flow | 0.57 | 0.62 | 0.56 | 1.21 | ||||
| Return on Equity | 0.11 | 0.11 | 0.11 | 0.11 | 0.11 | 0.105 | 0.10 | 0 |
| Asset growth rate | 0.11 | 0.11 | 0.11 | 0.08 | 0.08 | 0.08 | 0.05 | |
| Earning growth rate | 0.11 | 0.11 | 0.11 | 0.08 | 0.03 | 0.03 |
Assuming that competition drives down profitability (on existing assets as well as new investment) to 10.5% in year 6, 10% in year 7, 9.5% in year 8, and 7% in year 9 and all later years. What is the value of the concatenator business?
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