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Consider the table given below to answer the following question. Year 1 2 3 4 5 6 7 8 9 10 Asset value 11.00 12.76
Consider the table given below to answer the following question.
Year | ||||||||||||||||||||
1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | |||||||||||
Asset value | 11.00 | 12.76 | 14.80 | 17.17 | 19.40 | 21.92 | 24.77 | 27.25 | 29.98 | 32.97 | ||||||||||
Earnings | 1.76 | 2.04 | 2.37 | 2.75 | 3.10 | 3.40 | 3.72 | 3.95 | 3.60 | 3.96 | ||||||||||
Net investment | 1.76 | 2.04 | 2.37 | 2.23 | 2.52 | 2.85 | 2.48 | 2.73 | 3.00 | 3.30 | ||||||||||
Free cash flow (FCF) | 0.52 | 0.58 | 0.55 | 1.24 | 1.23 | 0.60 | 0.66 | |||||||||||||
Return on equity (ROE) | 0.16 | 0.16 | 0.16 | 0.16 | 0.16 | 0.155 | 0.15 | 0.145 | 0.12 | 0.12 | ||||||||||
Asset growth rate | 0.16 | 0.16 | 0.16 | 0.13 | 0.13 | 0.13 | 0.10 | 0.10 | 0.10 | 0.10 | ||||||||||
Earnings growth rate | 0.16 | 0.16 | 0.16 | 0.13 | 0.09 | 0.09 | 0.06 | 0.09 | 0.10 | |||||||||||
Assuming that competition drives down profitability (on existing assets as well as new investment) to 15.5% in year 6, 15% in year 7, 14.5% in year 8, and 12% in year 9 and all later years. What is the value of the concatenator business? Assume 14% cost of capital. (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)
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