1. You have been called in by LaPlace Instruments, a manufacturer of medical equipment, to provide some advice on value creation. The firm has a market value of $ 525 million and you believe that it is fairly priced. The firm reported EBITDA of 150 million in the most recent financial year and paid 21% of its income as taxes. The firm also had capital expenditures of $ 75 million, depreciation of $ 25 million, and no working capital needs during the year. The firm has an expected growth rate of 4%. You believe that the firm can double its return on capital on new investments but cannot do much to improve its return on capital on existing investments.Estimate the value of the firm with this change, assuming that the stable growth rate remains 4%. (10 points)

\begin{tabular}{|l|l|} \hline 51 & \\ \hline 53 & Market Value ($M) \\ \hline 54 & EBITDA ($M) \\ \hline 55 & Tax rate \\ \hline 56 & Capex ($M) \\ \hline 57 & Depreciation ($M) \\ \hline 58 & Expected growth rate \\ \hline 59 & Return on newly invested capital/Return on old invested capital \\ \hline 60 & \\ \hline 61 & NOPAT \\ \hline 62 & Reinvestment \\ 63 & Reinvestment rate = \\ \hline 64 & Return on capital on existing investments = \\ \hline 65 & Cost of capital = \\ \hline 66 & Return on capital on new investments = \\ \hline 67 & Reinvestment rate = \\ \hline 68 & New firm value = \\ 69 & \\ \hline 70 & \\ 71 & \\ 72 & \\ 73 & \\ \hline \end{tabular} \begin{tabular}{|l|l|} \hline 51 & \\ \hline 53 & Market Value ($M) \\ \hline 54 & EBITDA ($M) \\ \hline 55 & Tax rate \\ \hline 56 & Capex ($M) \\ \hline 57 & Depreciation ($M) \\ \hline 58 & Expected growth rate \\ \hline 59 & Return on newly invested capital/Return on old invested capital \\ \hline 60 & \\ \hline 61 & NOPAT \\ \hline 62 & Reinvestment \\ 63 & Reinvestment rate = \\ \hline 64 & Return on capital on existing investments = \\ \hline 65 & Cost of capital = \\ \hline 66 & Return on capital on new investments = \\ \hline 67 & Reinvestment rate = \\ \hline 68 & New firm value = \\ 69 & \\ \hline 70 & \\ 71 & \\ 72 & \\ 73 & \\ \hline \end{tabular}