Mexican Motors' market cap is 200 billion pesos. Next year's free cash flow is 9.7 billion pesos. Security analysts are forecasting that free cash flow will grow by 8.70% per year for the next five years. a.Assume that the 8.70% growth rate is expected to continue forever. What rate of return are investors expecting? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. b-1.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 maintains the same ROE and investment rate for the long run. What will be the growth rate of earnings? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place. b-2.What would be the rate of return? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. a. Rate of return % b-1. Growth rate % b-2. Rate of return %
Mexican Motors' market cap is 200 billion pesos. Next year's free cash flow is 9.7 billion pesos. Security analysts are forecasting that free cash flow will grow by 8.70% per year for the next five years. a.Assume that the 8.70% growth rate is expected to continue forever. What rate of return are investors expecting? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. b-1.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 maintains the same ROE and investment rate for the long run. What will be the growth rate of earnings? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place. b-2.What would be the rate of return? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. a. Rate of return % b-1. Growth rate % b-2. Rate of return %
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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Transcribed Image Text:Mexican Motors' market cap is 200 billion pesos. Next year's free cash flow is 9.7 billion pesos. Security analysts are forecasting that
free cash flow will grow by 8.70% per year for the next five years.
a.Assume that the 8.70% growth rate is expected to continue forever. What rate of return are investors expecting?
Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.
b-1.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 maintains the same ROE and investment rate for the long run. What will
be the growth rate of earnings?
Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.
b-2.What would be the rate of return?
Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.
a. Rate of return
b-1. Growth rate
b-2. Rate of return
%
%
%
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