Question: Please help to solve given step by step instruction using a financial calculator (BA II Plus) Please. Valuing free cash flowMexican Motors' market cap is

Please help to solve given step by step instruction using a financial calculator (BA II Plus) Please.

Valuing free cash flowMexican 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.

a.Assume that the 7.5% growth rate is expected to continue forever. What rate of return are investors expecting?

b.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. What is the implication for the growth rate of earnings and free cash flow? For the cost of equity? Should you revise your answer to part (a) of this question?

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