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- Presently, the firm generates after - tax operating earnings of 3 0 0 million from revenues of 1 0 billion, with a capital turnover
Presently, the firm generates aftertax operating earnings of million from revenues of billion, with a capital turnover ratio of
It is anticipated that of the aftertax operating income will be reinvested.
The company is entirely financed through equity and maintains a cost of capital of
To estimate the firm's value, assuming ongoing adherence to existing policies indefinitely, we calculate the present value based on constant returns on capital and reinvestment rates.
Assuming a potential increase in aftertax operating margins from to while keeping the capital turnover ratio constant, and reducing the reinvestment rate to alongside a shift to the optimal debt ratio which would lower the cost of capital to we can assess the potential increase in the firm's value.
By implementing these changes, the firm's value would likely experience a significant boost.
Estimate the change in value.
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