Asset value Earnings Net investment Free cash flow (FCF) Return on equity (ROE) Asset growth rate Earnings growth rate Year 2 3 4 5 6 7 8 9 10 3.35 2.74 1 11.00 12.65 14.55 16.73 18.74 20.99 23.50 25.62 27.93 30.44 1.65 1.90 2.18 2.51 1.65 1.90 2.18 2.01 0.50 0.15 0.15 0.15 0.15 0.15 0.12 0.15 0.15 0.15 0.61 2.81 3.04 3.29 3.46 3.07 2.25 2.52 2.12 2.51 2.31 0.56 0.52 1.18 1.15 0.56 0.15 0.145 0.14 0.135 0.11 0.12 0.12 0.09 0.09 0.09 0.08 0.08 0.05 -0.11 0.11 0.09 0.12 0.09 0.15 0.15 Assuming that competition drives down profitability (on existing assets as well as new investment) to 14.5% in year 6, 14% in year 7, 13.5% in year 8, and 11% in year 9 and all later years. What is the value of the concatenator business? Assume 14% cost of capital. (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)
Asset value Earnings Net investment Free cash flow (FCF) Return on equity (ROE) Asset growth rate Earnings growth rate Year 2 3 4 5 6 7 8 9 10 3.35 2.74 1 11.00 12.65 14.55 16.73 18.74 20.99 23.50 25.62 27.93 30.44 1.65 1.90 2.18 2.51 1.65 1.90 2.18 2.01 0.50 0.15 0.15 0.15 0.15 0.15 0.12 0.15 0.15 0.15 0.61 2.81 3.04 3.29 3.46 3.07 2.25 2.52 2.12 2.51 2.31 0.56 0.52 1.18 1.15 0.56 0.15 0.145 0.14 0.135 0.11 0.12 0.12 0.09 0.09 0.09 0.08 0.08 0.05 -0.11 0.11 0.09 0.12 0.09 0.15 0.15 Assuming that competition drives down profitability (on existing assets as well as new investment) to 14.5% in year 6, 14% in year 7, 13.5% in year 8, and 11% in year 9 and all later years. What is the value of the concatenator business? Assume 14% cost of capital. (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter3: Risk And Return: Part Ii
Section: Chapter Questions
Problem 4P
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Transcribed Image Text:Consider the table given below to answer the following question.
Asset value
Earnings
Net investment
Free cash flow (FCF)
Return on equity (ROE)
Asset growth rate
Earnings growth rate
Present value
Year
1
4
5
6
7
8
9
10
11.00
3.07 3.35
2.51
2.74
2
3
12.65 14.55 16.73 18.74 20.99 23.50 25.62 27.93 30.44
1.65 1.90 2.18 2.51 2.81 3.04 3.29 3.46
1.65 1.90 2.18 2.01 2.25 2.52 2.12 2.31
0.50
0.56 0.52
1.18
0.61
1.15
0.15 0.15 0.15 0.15 0.15 0.145 0.14 0.135
0.11 0.11
0.15 0.15 0.15 0.12 0.12 0.12 0.09 0.09 0.09 0.09
0.15 0.15 0.15 0.12 0.08 0.08 0.05 -0.11 0.09
0.56
Assuming that competition drives down profitability (on existing assets as well as new investment) to 14.5% in year 6, 14% in year 7,
13.5% in year 8, and 11% in year 9 and all later years. What is the value of the concatenator business? Assume 14% cost of capital. (Do
not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)
million
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