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
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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