Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Problem 4-30 Valuing a business Mexican Motors' market cap is 200 billion pesos. Next year's free cash flow is 9.1 billion pesos. Security analysts are
Problem 4-30 Valuing a business Mexican Motors' market cap is 200 billion pesos. Next year's free cash flow is 9.1 billion pesos. Security analysts are forecasting that free cash flow will grow by 8.10% per year for the next five years. a. Assume that the 8.10% 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 9% on book equity (ROE = 9%) 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
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started