PLEASE Do it by hand, please do not use EXCEL or any other software!!

Mexican Motors' market cap is 200 billion pesos. Next year's free cash flow is 8.5 billion pesos. Security analysts are forecasting that free cash flow will grow by 7.5% per year for the next five years. Assume that the 7.5% growth rate is expected to continue forever.

Hint: at the business level, market cap is similar to price per share, and cash flow is similar to dividend per share.

For simplicity you can enter the values in billion pesos, where applicable.

a. What rate of return are investors expecting?__________ % (enter the value in xx.xx format as percentage)

Mexican Motors has generally earned about 12% on book equity (ROE = 12%) and reinvested 50% of earnings. The remaining 50% of earnings has gone to free cash flow. Suppose the company maintains the same ROE and investment rate for the long run.

b. What is the growth rate of earnings and free cash flow? __________ % (enter the value in x.xx format as percentage)

c. What is the new rate of return (computed in part a)? __________ % (enter the value in xx.xx format as percentage)

PLEASE Do it by hand, please do not use EXCEL or any other software!!