You are valuing Research AI, a materials discovery firm. The value of the operating assets based...
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You are valuing Research AI, a materials discovery firm. The value of the operating assets based on your analysis is $1,450 million. This estimated value is based on your assumptions: > > > The firm is in stable growth, growing at 2.5% a year Its cost of capital is 10% Its return on capital is 24% You derived the return on capital and reinvestment rate based on the firm's financial statements and used those to get your estimate of the firm's growth rate. You realize that you did not capitalize R&D. You expect that capitalizing R&D will double the reinvestment rate and that the return on capital will drop to 16%. Assuming Research AI is in stable growth, compute the impact of capitalizing R&D on the value of Research Al's operating assets. You are valuing Research AI, a materials discovery firm. The value of the operating assets based on your analysis is $1,450 million. This estimated value is based on your assumptions: > > > The firm is in stable growth, growing at 2.5% a year Its cost of capital is 10% Its return on capital is 24% You derived the return on capital and reinvestment rate based on the firm's financial statements and used those to get your estimate of the firm's growth rate. You realize that you did not capitalize R&D. You expect that capitalizing R&D will double the reinvestment rate and that the return on capital will drop to 16%. Assuming Research AI is in stable growth, compute the impact of capitalizing R&D on the value of Research Al's operating assets.
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To compute the impact of capitalizing RD on the value of Research AIs operating assets you can use t... View the full answer
Related Book For
Valuation The Art and Science of Corporate Investment Decisions
ISBN: 978-0133479522
3rd edition
Authors: Sheridan Titman, John D. Martin
Posted Date:
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