Triad Enterprises is a firm in stable growth, with $100 million in after-tax operating income growing at 5% a year in perpetuity. The firm has a cost of capital of 12% and earns a return on capital of 10%. Triad would like to increase its value as a firm by 30%. 

Assuming that the cost of capital, existing operating income, and growth stay fixed, how much would the return on capital on new investments have to improve for this to happen?

Answer rating: 100% (QA)

The return on capital ROC on new investments would have to improve by 3 in order for the firms value to increase by 30 To calculate the required return on capital we need to first calculate the change ... View the full answer