IN FIN454 Fall21 - Assignment2.pdf H6/7 QU Qua Question 4 (15 points) Asterix Inc. is a mature company whose management team has a poor track record. There is a possibility that there will be a management turnover to replace the poor performing CEO. You have the following information: . With incumbent management team, the firm will: Generate $50 million in after-tax operating income next year Reinvest $20 million of this after-tax operating income Generate a constant growth of 3% a year in perpetuity Have a cost of capital of 7% . If there is management turnover, this is your expectation under the new management: $50 million in after-tax operating income next year Generate constant growth of 3% a year in perpetuity Cost of capi 7% The return on capital will double from its current level You estimate the probability of a management turnover at 30%. What is the expected value of the operating assets? Note: expected value = value under incumbent management * probability of no turnover + value under new management * probability of management turnover IN FIN454 Fall21 - Assignment2.pdf H6/7 QU Qua Question 4 (15 points) Asterix Inc. is a mature company whose management team has a poor track record. There is a possibility that there will be a management turnover to replace the poor performing CEO. You have the following information: . With incumbent management team, the firm will: Generate $50 million in after-tax operating income next year Reinvest $20 million of this after-tax operating income Generate a constant growth of 3% a year in perpetuity Have a cost of capital of 7% . If there is management turnover, this is your expectation under the new management: $50 million in after-tax operating income next year Generate constant growth of 3% a year in perpetuity Cost of capi 7% The return on capital will double from its current level You estimate the probability of a management turnover at 30%. What is the expected value of the operating assets? Note: expected value = value under incumbent management * probability of no turnover + value under new management * probability of management turnover