An analyst uses the following summary balance sheet to value a firm at the end of 2009
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An analyst uses the following summary balance sheet to value a firm at the end of 2009 (in millions of dollars):
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The analyst forecasts that the firm will earn a return on net operating assets (RNOA) of 12 percent in 2010 and a residual operating income of $9l.4 million.
a. What is the implied rate of required return for operations that the analyst is using in his residual operating income forecast?
b. The analyst forecasts that the residual operating income in 2010 will continue as a perpetuity. What value does this imply for the equity?
c. Calculate the forecast of residual earnings (on common equity) that is implied by these forecasts. The firm's after-tax cost of debt is 6.0percent.
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial... Cost Of Debt
The cost of debt is the effective interest rate a company pays on its debts. It’s the cost of debt, such as bonds and loans, among others. The cost of debt often refers to before-tax cost of debt, which is the company's cost of debt before taking...
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a Residual operating income ReOI is 914 12 required return 4572 So requi...View the full answer
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