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Mexican Motors market cap is 250 billion pesos. Next years free cash flow is 9.5 billion pesos. Security analysts are forecasting that free cash flow

Mexican Motors market cap is 250 billion pesos. Next years free cash flow is 9.5 billion pesos. Security analysts are forecasting that free cash flow will grow by 8.5% per year for the next five years.

a.

Assume that the 8.5% growth rate is expected to continue forever. What rate of return are investors expecting? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Rate of return %
b-1.

Mexican Motors has generally earned about 13% on book equity (ROE =13%) 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 thegrowth rate of earnings? (Do not round intermediate calculations. Round your answer to 1 decimal place.)

Growth rate

%

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