Mexican Motors’ market cap is 250 billion pesos. Next year’s free cash flow is 10.5 billion pesos. Security analysts are forecasting that free cash flow will grow by 9.50% per year for the next five years. a. Assume that the 9.50% growth rate is expected to continue forever. What rate of return are investors expecting? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) b-1. Mexican Motors has generally earned about 13% on book equity (ROE = 13%) 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 will be the growth rate of earnings? (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal places.)

Mexican Motors’ market cap is 250 billion pesos. Next year’s free cash flow is 10.5 billion pesos. Security analysts are forecasting that free cash flow will grow by 9.50% per year for the next five years. a. Assume that the 9.50% growth rate is expected to continue forever. What rate of return are investors expecting? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) b-1. Mexican Motors has generally earned about 13% on book equity (ROE = 13%) 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 will be the growth rate of earnings? (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal places.)

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter7: Valuation Of Stocks And Corporations

Section7.6: Valuing Nonconstant Growth Stocks

Problem 3ST

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