Consider the table given below to answer the following question. Year Asset value Earnings Net investment Free cash flow Return on equity Asset growth rate Earnings growth rate 1 9.00 1.44 1.44 0.00 0.16 0.16 Present value 2 10.44 million 1.67 1.67 0.00 0.16 0.16 0.16 3 12.11 1.94 1.94 0.00 0.16 0.16 0.16 4 5 6 14.05 15.87 17.94 2.54 2.78 2.06 2.33 0.48 0.45 0.16 0.155 0.13 0.13 0.13 0.09 2.25 1.83 0.42 0.16 0.13 0.16 8 22.30 3.23 2.23 1.00 7 20.27 9 24.53 2.94 3.04 2.03 2.45 1.01 0.49 0.12 0.15 0.145 0.10 0.06 -0.09 0.10 0.10 0.09 10 26.98 Assuming that competition drives down profitability (on existing assets as well as new investment) to 15.5% in year 6, 15% in year 7, 14.5% in year 8, and 12% in year 9 and all later years. What is the value of the concatenator business? Assume 13% cost of capital. Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. 3.24 2.70 0.54 0.12 0.10 0.10
Consider the table given below to answer the following question. Year Asset value Earnings Net investment Free cash flow Return on equity Asset growth rate Earnings growth rate 1 9.00 1.44 1.44 0.00 0.16 0.16 Present value 2 10.44 million 1.67 1.67 0.00 0.16 0.16 0.16 3 12.11 1.94 1.94 0.00 0.16 0.16 0.16 4 5 6 14.05 15.87 17.94 2.54 2.78 2.06 2.33 0.48 0.45 0.16 0.155 0.13 0.13 0.13 0.09 2.25 1.83 0.42 0.16 0.13 0.16 8 22.30 3.23 2.23 1.00 7 20.27 9 24.53 2.94 3.04 2.03 2.45 1.01 0.49 0.12 0.15 0.145 0.10 0.06 -0.09 0.10 0.10 0.09 10 26.98 Assuming that competition drives down profitability (on existing assets as well as new investment) to 15.5% in year 6, 15% in year 7, 14.5% in year 8, and 12% in year 9 and all later years. What is the value of the concatenator business? Assume 13% cost of capital. Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. 3.24 2.70 0.54 0.12 0.10 0.10
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
Related questions
Question
![Consider the table given below to answer the following question.
Year
Asset value
Earnings
Net investment
Free cash flow
Return on equity
Asset growth rate
Earnings growth rate
1
9.00
1.44
1.44
0.00
0.16
0.16
Present value
2
10.44
1.67
1.67
0.00
0.16
0.16
0.16
million
3
4
5
12.11 14.05 15.87
1.94
2.54
2.25
1.94
1.83
2.06
0.00
0.42
0.48
0.16
0.16
0.16
0.16
0.13
0.13
0.16
0.16
0.13
6
7
17.94 20.27
2.78
2.33
0.45
0.155
0.13
0.09
3.04
2.03
1.01
0.15
0.10
0.09
8
9
22.30 24.53
3.23
2.94
2.23
2.45
1.00
0.49
0.145
0.12
0.10
0.10
0.06 -0.09
Assuming that competition drives down profitability (on existing assets as well as new investment) to 15.5% in year 6, 15% in
year 7, 14.5% in year 8, and 12% in year 9 and all later years. What is the value of the concatenator business? Assume 13% cost
of capital.
Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.
10
26.98
3.24
2.70
0.54
0.12
0.10
0.10](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F37090eef-025f-4619-bebd-91b936ece1eb%2F90585e9e-1a5d-4975-ba8b-ffee8b30ed4b%2Fbq7gcbj_processed.png&w=3840&q=75)
Transcribed Image Text:Consider the table given below to answer the following question.
Year
Asset value
Earnings
Net investment
Free cash flow
Return on equity
Asset growth rate
Earnings growth rate
1
9.00
1.44
1.44
0.00
0.16
0.16
Present value
2
10.44
1.67
1.67
0.00
0.16
0.16
0.16
million
3
4
5
12.11 14.05 15.87
1.94
2.54
2.25
1.94
1.83
2.06
0.00
0.42
0.48
0.16
0.16
0.16
0.16
0.13
0.13
0.16
0.16
0.13
6
7
17.94 20.27
2.78
2.33
0.45
0.155
0.13
0.09
3.04
2.03
1.01
0.15
0.10
0.09
8
9
22.30 24.53
3.23
2.94
2.23
2.45
1.00
0.49
0.145
0.12
0.10
0.10
0.06 -0.09
Assuming that competition drives down profitability (on existing assets as well as new investment) to 15.5% in year 6, 15% in
year 7, 14.5% in year 8, and 12% in year 9 and all later years. What is the value of the concatenator business? Assume 13% cost
of capital.
Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.
10
26.98
3.24
2.70
0.54
0.12
0.10
0.10
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