You have been called in by LaPlace Instruments, a manufacturer of medical equipment, to provide some advice on value creation. The firm has a market value of $ 525 million and you believe that it is fairly priced. The firm reported EBITDA of 150 million in the most recent financial year and paid 40% of its income as taxes. The firm also had capital expenditures of $ 75 million, depreciation of $25 million, and no working capital needs during the year. The firm has an expected growth rate of 4%. You believe that the firm can double its return on capital on new investments but cannot do much to improve its return on capital on existing investments.

Estimate the value of the firm with this change, assuming that the stable growth rate remains 4%.

Answer rating: 100% (QA)

Based on the information provided the firms net income can be calculated as follows Net Income EBITD... View the full answer