Question
Genoa Pasta manufactures Italian food products and currently earns $80 million in earnings before interest and taxes. You expect the firm's earnings to grow
Genoa Pasta manufactures Italian food products and currently earns $80 million in earnings before interest and taxes. You expect the firm's earnings to grow 20 percent a year for the next six years and 5% thereafter. The firm's current after- tax return on capital is 28%, but you expect it to be halved after the sixth year. If the cost of capital for the firm is expected to be 10% in perpetuity, estimate the terminal value for the firm. (The tax rate for the firm is 40%.)
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Macroeconomics
Authors: David Colander
8th edition
978-0078004407, 78004403, 978-0077247171, 77247175, 978-0077307110
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