Consider a firm that has existing assets in which it has capital invested of $100 million. Assume these four additional facts about the firm. 1. The after-tax operating income on assets in place is $15 million. This return on capital of 15% is expected to be sustained in perpetuity and the company has a cost of capital of 10%. 2. At the beginning of each of the next five years, the firm is expected to make investments of $10 million each. These investments are also expected to earn 15% as a return on capital and the cost of capital is expected to remain 10%. 3. After year 5, the company will continue to make investments and earnings will grow 5% a year, but the new investments will have a return on capital of only 10%, which is also the cost of capital. 4. All assets and investments are expected to have infinite lives.12 Thus, the assets in place and the investments made in the first five years will make 15% a year in perpetuity, with no growth. This firm can be valued using an economic value added approach