Consider the table given below to answer the following question. Year 1 2 5 8. 9. 10 Asset value 13.00 14.69 16.60 18.76 20.63 22.70 24.97 26.71 28.58 30.58 Earnings 1.69 1.91 2.16 2.44 2.68 2.84 3.00 3.07 2.57 2.75 Net investment 1.69 1.91 2.16 1.88 2.06 2.27 1.75 1.87 2.00 2.14 0.57 Free cash flow (FCF) Return on equity (ROE) Asset growth rate Earnings growth rate 0.56 0.62 0.57 1.25 1.20 0.61 0.13 0.13 0.13 0.13 0.13 0.125 0.12 0.115 0.09 0.09 0.13 0.13 0.13 0.10 0.10 0.10 0.07 0.07 0.07 0.07 0.13 0.13 0.13 0.10 0.06 0.06 0.03 -0.16 0.07 Assuming that competition drives down profitability (on existing assets as well as new investment) to 12.5% in year 6, 12% in year 7, 11.5% in year 8, and 9% in year 9 and all later years. What is the value of the concatenator business? Assume 11% cost of capital. (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) Answer is complete but not entirely correct. Present value $ 35.78 million
Consider the table given below to answer the following question. Year 1 2 5 8. 9. 10 Asset value 13.00 14.69 16.60 18.76 20.63 22.70 24.97 26.71 28.58 30.58 Earnings 1.69 1.91 2.16 2.44 2.68 2.84 3.00 3.07 2.57 2.75 Net investment 1.69 1.91 2.16 1.88 2.06 2.27 1.75 1.87 2.00 2.14 0.57 Free cash flow (FCF) Return on equity (ROE) Asset growth rate Earnings growth rate 0.56 0.62 0.57 1.25 1.20 0.61 0.13 0.13 0.13 0.13 0.13 0.125 0.12 0.115 0.09 0.09 0.13 0.13 0.13 0.10 0.10 0.10 0.07 0.07 0.07 0.07 0.13 0.13 0.13 0.10 0.06 0.06 0.03 -0.16 0.07 Assuming that competition drives down profitability (on existing assets as well as new investment) to 12.5% in year 6, 12% in year 7, 11.5% in year 8, and 9% in year 9 and all later years. What is the value of the concatenator business? Assume 11% cost of capital. (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) Answer is complete but not entirely correct. Present value $ 35.78 million
Microeconomics: Principles & Policy
14th Edition
ISBN:9781337794992
Author:William J. Baumol, Alan S. Blinder, John L. Solow
Publisher:William J. Baumol, Alan S. Blinder, John L. Solow
Chapter9: The Financial Markets And The Economy: The Tail That Wags The Dog
Section: Chapter Questions
Problem 5TY
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