Mexican Motors market cap is 200 billion pesos. Next years free cash flow is 10.1 billion pesos. Security analysts are forecasting that free cash flow will grow by 9.10% per year for the next five years.

a.Assume that the 9.10% growth rate is expected to continue forever. What rate of return are investors expecting?

Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.

b-1.Mexican Motors has generally earned about 14% on book equity (ROE = 14%) and reinvested 50% of earnings. The remaining 50% of earnings has gone to free cash flow. Suppose the company maintains the same ROE and investment rate for the long run. What will be the growth rate of earnings?

Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.

b-2.What would be the rate of return?

Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.