Mexican Motor's market cap is 200 billion pesos. Next year's cash flow is 8.6 billion pesos. Security analyst are forecasting that free cash flow will grow by 7.60% per year for the next five years. a. Assume that the 7.60 growth rate is expected to continue forever. What rate of return are investors expecting? b1. Mexican Motors has generally earned about 10% on book equity (ROE= 10%) and reinvested 50% of earnings. The remaining 50% of earnings has gone to free cash flow. Suppose the company mantians the same ROE and investment rate for the long run. What will be the growth rate of earnings? b2. What would be he rate of return?

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