Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Consider the table given below to answer the following question. Year 1 2 3 4 5 6 7 8 9 10 Asset value 13.00 14.56
Consider the table given below to answer the following question.
Year | ||||||||||||||||||||
1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | |||||||||||
Asset value | 13.00 | 14.56 | 16.31 | 18.26 | 19.91 | 21.70 | 23.65 | 25.07 | 26.58 | 28.17 | ||||||||||
Earnings | 1.56 | 1.75 | 1.96 | 2.19 | 2.39 | 2.50 | 2.60 | 2.63 | 2.13 | 2.25 | ||||||||||
Net investment | 1.56 | 1.75 | 1.96 | 1.64 | 1.79 | 1.95 | 1.42 | 1.50 | 1.59 | 1.69 | ||||||||||
Free cash flow (FCF) | 0.55 | 0.60 | 0.54 | 1.18 | 1.13 | 0.53 | 0.56 | |||||||||||||
Return on equity (ROE) | 0.12 | 0.12 | 0.12 | 0.12 | 0.12 | 0.115 | 0.11 | 0.105 | 0.08 | 0.08 | ||||||||||
Asset growth rate | 0.12 | 0.12 | 0.12 | 0.09 | 0.09 | 0.09 | 0.06 | 0.06 | 0.06 | 0.06 | ||||||||||
Earnings growth rate | 0.12 | 0.12 | 0.12 | 0.09 | 0.04 | 0.04 | 0.01 | 0.19 | 0.06 | |||||||||||
Assuming that competition drives down profitability (on existing assets as well as new investment) to 11.5% in year 6, 11% in year 7, 10.5% in year 8, and 8% in year 9 and all later years. What is the value of the concatenator business? Assume 11% cost of capital.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started