Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Mexican Motors' market cap is 400 billion pesos. Next year's free cash flow is 8.8 billion pesos. Security analysts are forecasting that free cash flow

image text in transcribed

Mexican Motors' market cap is 400 billion pesos. Next year's free cash flow is 8.8 billion pesos. Security analysts are forecasting that free cash flow will grow by 7.80% per year for the next five years. a. Assume that the 7.80% growth rate is expected to continue forever. What rate of return are investors expecting? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Rate of return % b-1. Mexican Motors has generally earned about 12% on book equity (ROE = 12%) 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? (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal places.) Growth rate b-2. What would be the rate of return? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Rate of return %

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Entrepreneurial Financial Management An Applied Approach

Authors: Jeffrey R Cornwall, David O Vang, Jean M Hartman

5th Edition

0367335417, 978-0367335410

More Books

Students also viewed these Finance questions