3.(EVA) Slow and Steady Inc. (S&S) is forecast to have a return on capital (ROC) of 10% and a weighted-average cost of capital (WACC) of 9% with a capital reinvestment rate of 60%. These values are expected to hold in perpetuity. If the current book value of the assets of the firm (i.e., its total capital today) is equal to 1000 please answer the following: (a) What is the forecasted economic value added (EVA) of S&S in each future year? (b) What is the net present value of the assets of the firm according to the EVA model? What is the present intrinsic value of the assets of S&S equal to according to the EVA model? (C) Suppose instead that analysts are forecasting that S&S's ROC will be equal to 12% in each of the following 5 years and only 10% starting in year 6 and in each subse- quent year. WACC is still expected to be 10% in every future year. If the capital reinvestment rate is forecast to be 80% in the next 5 years and only 40% starting in year 6, find the net present value today of the assets of S&S according to the EVA model. What is the present intrinsic value of the assets of the firm equal to according to the two-stage EVA model? (d) Which of these sets of forecasts (i.e., (b) versus (c)) lead to a higher present value of the assets of the firm? Why does it make sense? 3.(EVA) Slow and Steady Inc. (S&S) is forecast to have a return on capital (ROC) of 10% and a weighted-average cost of capital (WACC) of 9% with a capital reinvestment rate of 60%. These values are expected to hold in perpetuity. If the current book value of the assets of the firm (i.e., its total capital today) is equal to 1000 please answer the following: (a) What is the forecasted economic value added (EVA) of S&S in each future year? (b) What is the net present value of the assets of the firm according to the EVA model? What is the present intrinsic value of the assets of S&S equal to according to the EVA model? (C) Suppose instead that analysts are forecasting that S&S's ROC will be equal to 12% in each of the following 5 years and only 10% starting in year 6 and in each subse- quent year. WACC is still expected to be 10% in every future year. If the capital reinvestment rate is forecast to be 80% in the next 5 years and only 40% starting in year 6, find the net present value today of the assets of S&S according to the EVA model. What is the present intrinsic value of the assets of the firm equal to according to the two-stage EVA model? (d) Which of these sets of forecasts (i.e., (b) versus (c)) lead to a higher present value of the assets of the firm? Why does it make sense
