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8. ABS Corp. is expected to generate net income of $50 million next year and will pay $50 million in after-tax interest expense next year.
8. ABS Corp. is expected to generate net income of $50 million next year and will pay $50 million in after-tax interest expense next year. The company is expected to reinvest 80% of its after-tax operating earnings and will have return on capital (ROC) equal to 10% in perpetuity. If the weighted-average cost of capital for ABS Corp. is 10% what is todays present value of the firm equal to?
(a) $1 billion.
(b) $5 billion.
(c) $10 billion.
(d) $50 billion.
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