Consider the table given below to answer the following question. The long-run growth rate is projected at
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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 | 8 | 9 | 10 | ||||||||||
Asset value | 15.00 | 16.65 | 18.48 | 20.51 | 22.16 | 23.93 | 25.84 | 27.13 | 28.49 | 29.92 | ||||||||||
Earnings | 1.65 | 1.83 | 2.03 | 2.26 | 2.44 | 2.51 | 2.58 | 2.58 | 1.99 | 2.09 | ||||||||||
Net investment | 1.65 | 1.83 | 2.03 | 1.64 | 1.77 | 1.91 | 1.29 | 1.36 | 1.42 | 1.50 | ||||||||||
Free cash flow (FCF) | 0.62 | 0.66 | 0.60 | 1.29 | 1.22 | 0.57 | 0.60 | |||||||||||||
Return on equity (ROE) | 0.11 | 0.11 | 0.11 | 0.11 | 0.11 | 0.105 | 0.10 | 0.095 | 0.07 | 0.07 | ||||||||||
Asset growth rate | 0.11 | 0.11 | 0.11 | 0.08 | 0.08 | 0.08 | 0.05 | 0.05 | 0.05 | 0.05 | ||||||||||
Earnings growth rate | 0.11 | 0.11 | 0.11 | 0.08 | 0.03 | 0.03 | 0.00 | −-0.23 | 0.05 | |||||||||||
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? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)
Related Book For
Fundamentals of Corporate Finance
ISBN: 978-0133400694
1st canadian edition
Authors: Jonathan Berk, Peter DeMarzo, Jarrad Harford, David A. Stangeland, Andras Marosi
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