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Problem 7-35 Valuing Businesses.(LO3) 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 2 3 5 6 11.20 12.54 14.05 15.31 16.69 1.51 1.69 1.84 2.00 1.51 1.26 1.38 0.42 0.46 0.12 0.12 0.09 0.09 0.12 0.09 Present value 1 10.00 1.20 1.34 1.20 1.34 0.00 0.00 0.00 0.12 0.12 0.12 0.12 0.12 0.12 0.12 0.12 1.50 0.50 0.12 0.09 0.09 million 7 18.19 2.18 8 19.29 2.31 1.09 1.16 1.09 1.16 0.12 0.12 0.06 0.06 0.09 0.06 9 20.44 10 21.67 2.60 1.30 1.30 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 10% cost of capital. Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. 2.45 1.23 1.23 0.12 0.12 0.06 0.06 0.06 0.06

Problem 7-35 Valuing Businesses.(LO3) 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 2 3 5 6 11.20 12.54 14.05 15.31 16.69 1.51 1.69 1.84 2.00 1.51 1.26 1.38 0.42 0.46 0.12 0.12 0.09 0.09 0.12 0.09 Present value 1 10.00 1.20 1.34 1.20 1.34 0.00 0.00 0.00 0.12 0.12 0.12 0.12 0.12 0.12 0.12 0.12 1.50 0.50 0.12 0.09 0.09 million 7 18.19 2.18 8 19.29 2.31 1.09 1.16 1.09 1.16 0.12 0.12 0.06 0.06 0.09 0.06 9 20.44 10 21.67 2.60 1.30 1.30 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 10% cost of capital. Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. 2.45 1.23 1.23 0.12 0.12 0.06 0.06 0.06 0.06

Essentials Of Investments
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
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Problem 7-35 Valuing Businesses.(LO3) 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 10.00 1.20 Present value 1.20 0.00 0.12 0.12 2 11.20 1.34 1.34 0.00 0.12 0.12 0.12 3 12.54 million 1.51 1.51 0.00 0.12 0.12 0.12 4 5 14.05 15.31 1.84 1.38 0.46 0.12 0.09 0.09 1.69 1.26 0.42 0.12 0.09 0.12 6 16.69 2.00 1.50 0.50 0.12 0.09 0.09 10 7 8 18.19 19.29 2.18 21.67 2.31 2.60 1.09 1.16 1.30 1.09 1.16 1.30 0.12 0.12 0.12 0.12 0.06 0.06 0.06 0.06 0.06 0.06 0.06 0.09 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 10% cost of capital. Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. 9 20.44 2.45 1.23 1.23
Transcribed Image Text:Problem 7-35 Valuing Businesses.(LO3) 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 10.00 1.20 Present value 1.20 0.00 0.12 0.12 2 11.20 1.34 1.34 0.00 0.12 0.12 0.12 3 12.54 million 1.51 1.51 0.00 0.12 0.12 0.12 4 5 14.05 15.31 1.84 1.38 0.46 0.12 0.09 0.09 1.69 1.26 0.42 0.12 0.09 0.12 6 16.69 2.00 1.50 0.50 0.12 0.09 0.09 10 7 8 18.19 19.29 2.18 21.67 2.31 2.60 1.09 1.16 1.30 1.09 1.16 1.30 0.12 0.12 0.12 0.12 0.06 0.06 0.06 0.06 0.06 0.06 0.06 0.09 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 10% cost of capital. Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. 9 20.44 2.45 1.23 1.23
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