Assuming that competition drives down profitability (on existing assets as well as new investment) to 10.5% in year 6, 10% in year 7. 9.5% in year 8, and 7% in year 9 and all later years. What is the value of the concatenator business? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) Present value million
Assuming that competition drives down profitability (on existing assets as well as new investment) to 10.5% in year 6, 10% in year 7. 9.5% in year 8, and 7% in year 9 and all later years. What is the value of the concatenator business? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) Present value million
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Return on Equity
The Return on Equity (RoE) is a measure of the profitability of a business concerning the funds by its stockholders/shareholders. ROE is a metric used generally to determine how well the company utilizes its funds provided by the equity shareholders.
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Transcribed Image Text:Consider the table given below to answer the following question. The long-run growth rate is projected at 5% and discount rate is 10%.
Year
Asset value
Earnings
Net investment
Free cash flow (FCF)
Return on equity (ROE)
Asset growth ratei
Earnings growth rate
1
2
4
5
6
7
8
10
28.49 29.92
15.00 16.65 18.48 20.51 22.16 23.93 25.84 27.13
1.65 1.83 2.03
1.65 1.83 2.03
1.99 2.09
1,42 1.50
2.26 2.44 2.51 2.58 2.58
1.64 1.77 1.91 1.29 1.36
0.62 9.66 0.60 1.29 1.22
0.11 0.11 0.11 0.11 0.11 0.105 0.10 0.095
0.11 0.11 0.11 0.08 0.08 0.00 0.05 0.05 0.05
0.11 0.11 0.11 0.08
0.57
0.60
0.07
9.07
0.05
0.03 0.03 0.00 -0.23 0.05
Assuming that competition drives down profitability (on existing assets as well as new investment) to 10.5% in year 6, 10% in year 7.
9.5% in year 8, and 7% in year 9 and all later years. What is the value of the concatenator business? (Do not round intermediate
calculations. Enter your answer in millions rounded to 2 decimal places.)
Present value
million
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