What is the horizon value at Year 4? What is the total net operating capital at Year 4? Which is larger, and what can explain the difference? What is the value of operations at Year 0? How does the Year-0 value of operations compare with the Year-0 total net operating capital?
What is the horizon value at Year 4? What is the total net operating capital at Year 4? Which is larger, and what can explain the difference? What is the value of operations at Year 0? How does the Year-0 value of operations compare with the Year-0 total net operating capital?
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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- What is the horizon value at Year 4? What is the total net operating capital at Year 4? Which is larger, and what can explain the difference? What is the value of operations at Year 0? How does the Year-0 value of operations compare with the Year-0 total net operating capital?
Transcribed Image Text:The ROIC in year 4 is 8.04% which is less than the value of the WACC which is 9% this means that the
return on the project is lower than the cost of funding it meaning value is being decresaed.
图
NOPAT/Sales
4.5
%
ОРСАР/Sales
56
%
WACC
9%
Year
1
2
3
4
Growth rate
10%
8%
5%
5%
5%
Sales
2000
2200
2376
2494.8
2619.54
Sales(year1)
=Growth rate
*sales(Year0)
NOPAT
90
99
106.92
112.266
117.8793
Ор сapital
1120
1232
1330.56
1397.088
1466.942
Increase op
112
98.56
66.528
69.8544
сapital
Free cash flow
-13
8.36
45.738
48.0249
Ecf=NOPAT-
increase in
operating
capital
Continuation
1260.654
value
Cont. Value=
(FCFyear4*
(1+g))/(WACC-
g)
957.52
1056.706
1143.45
1200.623
88
PV
1043.706
1151.81
1246.361
1308.679
ROIC
8.04%
8.04%
8.04%
8.04%
ROIC=NOPAT/
OPCap
Growth in FCF
164%
447%
5%
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