Consider the table given below to answer the following question.Year345710Asset value13.00 14.69 16.60 18.76 20.63 22.70 24.97 26.71 28.58 30.58EarningsNet investment1.691.912.162.442.682.843.003.072.572.751.691.912.161.882.062.271.751.872.002.14Free cash flow (FCF)Return on equity (ROE)Asset growth rateEarnings growth rate0.560.620.571.251.200.570.610.130.130.130.130.13 0.1250.12 0.1150.090.090.130.100.100.100.130.130.100.070.070.070.070.130.130.130.060.060.03 -0.16 0.07Assuming that competition drives down profitability (on existing assets as well as new investment) to 12.5%in year 6, 12% in year 7, 11.5% in year 8, and 9% in year 9 and all later years. What is the value of theconcatenator business? Assume 11% cost of capital. (Do not round intermediate calculations. Enter youranswer in millions rounded to 2 decimal places.)Answer is complete but not entirely correct.Present value$ 35.78 8 million

Introduction Present value in year 1 = cash flow(1 + return)n = 13.13(1 + 0.13)1 = 11.61 Present…

Consider the table given below to answer the following question. Year 1 2 5 8. 9. 10 Asset value 13.00 14.69 16.60 18.76 20.63 22.70 24.97 26.71 28.58 30.58 Earnings 1.69 1.91 2.16 2.44 2.68 2.84 3.00 3.07 2.57 2.75 Net investment 1.69 1.91 2.16 1.88 2.06 2.27 1.75 1.87 2.00 2.14 0.57 Free cash flow (FCF) Return on equity (ROE) Asset growth rate Earnings growth rate 0.56 0.62 0.57 1.25 1.20 0.61 0.13 0.13 0.13 0.13 0.13 0.125 0.12 0.115 0.09 0.09 0.13 0.13 0.13 0.10 0.10 0.10 0.07 0.07 0.07 0.07 0.13 0.13 0.13 0.10 0.06 0.06 0.03 -0.16 0.07 Assuming that competition drives down profitability (on existing assets as well as new investment) to 12.5% in year 6, 12% in year 7, 11.5% in year 8, and 9% in year 9 and all later years. What is the value of the concatenator business? Assume 11% cost of capital. (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) Answer is complete but not entirely correct. Present value $ 35.78 million

Consider the table given below to answer the following question. Year 1 2 5 8. 9. 10 Asset value 13.00 14.69 16.60 18.76 20.63 22.70 24.97 26.71 28.58 30.58 Earnings 1.69 1.91 2.16 2.44 2.68 2.84 3.00 3.07 2.57 2.75 Net investment 1.69 1.91 2.16 1.88 2.06 2.27 1.75 1.87 2.00 2.14 0.57 Free cash flow (FCF) Return on equity (ROE) Asset growth rate Earnings growth rate 0.56 0.62 0.57 1.25 1.20 0.61 0.13 0.13 0.13 0.13 0.13 0.125 0.12 0.115 0.09 0.09 0.13 0.13 0.13 0.10 0.10 0.10 0.07 0.07 0.07 0.07 0.13 0.13 0.13 0.10 0.06 0.06 0.03 -0.16 0.07 Assuming that competition drives down profitability (on existing assets as well as new investment) to 12.5% in year 6, 12% in year 7, 11.5% in year 8, and 9% in year 9 and all later years. What is the value of the concatenator business? Assume 11% cost of capital. (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) Answer is complete but not entirely correct. Present value $ 35.78 million

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter31: Capital Markets

Section: Chapter Questions

Problem 2E

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