Consider the table given below to answer the following question. Year 1 Asset value 2 3 15.00 16.80 18.82 4 5 6 7 8 9 10 21.07 22.97 25.04 27.29 28.93 30.66 32.50 Earnings 1.80 2.02 2.26 2.53 2.76 2.88 3.00 3.04 2.45 2.60 Net investment 1.80 2.02 2.26 1.90 2.07 2.25 1.64 1.74 1.84 1.95 Free cash flow 0.00 0.00 0.00 0.63 0.69 0.63 1.36 1.30 0.61 0.65 Return on equity 0.12 0.12 0.12 0.12 0.12 0.115 0.11 0.105 0.08 0.08 Asset growth rate 0.12 0.12 0.12 0.09 0.09 0.09 0.06 0.06 0.06 0.06 Earnings growth rate 0.12 0.12 0.12 0.09 0.04 0.04 0.01 -0.19 0.06 Assuming that competition drives down profitability (on existing assets as well as new investment) to 11.5% in year 6, 11% in year 7, 10.5% in year 8, and 8% in year 9 and all later years. What is the value of the concatenator business? Assume 11% cost of capital. Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. Present value million
Consider the table given below to answer the following question. Year 1 Asset value 2 3 15.00 16.80 18.82 4 5 6 7 8 9 10 21.07 22.97 25.04 27.29 28.93 30.66 32.50 Earnings 1.80 2.02 2.26 2.53 2.76 2.88 3.00 3.04 2.45 2.60 Net investment 1.80 2.02 2.26 1.90 2.07 2.25 1.64 1.74 1.84 1.95 Free cash flow 0.00 0.00 0.00 0.63 0.69 0.63 1.36 1.30 0.61 0.65 Return on equity 0.12 0.12 0.12 0.12 0.12 0.115 0.11 0.105 0.08 0.08 Asset growth rate 0.12 0.12 0.12 0.09 0.09 0.09 0.06 0.06 0.06 0.06 Earnings growth rate 0.12 0.12 0.12 0.09 0.04 0.04 0.01 -0.19 0.06 Assuming that competition drives down profitability (on existing assets as well as new investment) to 11.5% in year 6, 11% in year 7, 10.5% in year 8, and 8% in year 9 and all later years. What is the value of the concatenator business? Assume 11% cost of capital. Note: 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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Question
Nikul
Transcribed Image Text:Consider the table given below to answer the following question.
Year
1
Asset value
2
3
15.00 16.80 18.82
4
5
6
7
8
9
10
21.07
22.97
25.04
27.29
28.93
30.66 32.50
Earnings
1.80
2.02
2.26
2.53
2.76
2.88
3.00
3.04
2.45
2.60
Net investment
1.80
2.02
2.26
1.90
2.07
2.25
1.64
1.74
1.84
1.95
Free cash flow
0.00
0.00
0.00
0.63
0.69
0.63
1.36
1.30
0.61
0.65
Return on equity
0.12
0.12
0.12
0.12
0.12
0.115
0.11 0.105
0.08
0.08
Asset growth rate
0.12
0.12
0.12
0.09
0.09
0.09
0.06
0.06
0.06
0.06
Earnings growth rate
0.12
0.12
0.12
0.09
0.04
0.04
0.01 -0.19
0.06
Assuming that competition drives down profitability (on existing assets as well as new investment) to 11.5% in year 6, 11% in year 7,
10.5% in year 8, and 8% in year 9 and all later years. What is the value of the concatenator business? Assume 11% cost of capital.
Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.
Present value
million
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