Construct a new version of Table 4.7, assuming that the concatenator division grows at 20%, 12%, and 6%, instead of 12%, 9%, and 6%. You will get negative early free cash flows.

a. Recalculate the PV of free cash flow. What does your revised PV say about the division's PVGO?

b. Suppose the division is the public corporation Concatco, with no other resources. Thus it will have to issue stock to cover the negative free cash flows. Does the need to issue shares change your valuation? Explain.

TABLE 4.7

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10 10.00 11.20 12.54 14.05 15.31 16.69 18.19 19.29 20.44 21.67 .20 1.34 151 1.69 84 2.00 2182.3 245 2.60 .20 134 1.51 126 38 150 1.09 1.16 1.23 1.30 0.00 0.00 0.00 0.42 0.46 0.50 1.09 1.16 1.23 130 11.20 12.54 14.05 15.31 16.69 18.19 19.29 20.44 21.67 22.97 0.12 0.12 0.12 0.12 0.12 012 01 0.12 0.12 0.12 0.12 0.12 0.12 0.09 0.09 0.09 0.06 0.06 0.06 0.06 0.12 0.12 0.12 0.09 0.09 0.09 006 0.06 0.06 3 6 7 8 Asset value, start of year Earnings Investment Free cash flow (FCF) Asset value, end of year Return on assets (ROA) Asset growth rate Earnings growth rate, from previous year