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You are trying to value Prasmul Drugs, a pharmaceutical company, and have computed the value for the operating assets to be Rp1 billion, based upon
You are trying to value Prasmul Drugs, a pharmaceutical company, and have computed the value for the operating assets to be Rp1 billion, based upon the assumption that the firm is in stable growth, growing 2% a year, with a cost of capital of 10% and a return on capital of 20%. For the cash flows and the growth rate, you used conventional accounting statements to estimate a reinvestment rate and the return on capital. If you capitalize R&D, you expect your reinvestment rate to double and your return on capital to drop to 12.5%. What effect will R&D capitalization have on the estimated value of the operating assets, assuming that the firm is still in stable growth? You are trying to value Prasmul Drugs, a pharmaceutical company, and have computed the value for the operating assets to be Rp1 billion, based upon the assumption that the firm is in stable growth, growing 2% a year, with a cost of capital of 10% and a return on capital of 20%. For the cash flows and the growth rate, you used conventional accounting statements to estimate a reinvestment rate and the return on capital. If you capitalize R&D, you expect your reinvestment rate to double and your return on capital to drop to 12.5%. What effect will R&D capitalization have on the estimated value of the operating assets, assuming that the firm is still in stable growth
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