Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Consider the table given below to answer the following question. Year Asset value Earnings 1 2 3 15.00 16.80 18.82 1.80 2.02 2.26 4 21.07 2.53 5 6 22.97 25.04 27.29 7 8 9 10 28.93 30.66 32.50 2.76 2.88 3.00 3.04 2.45 2.60 Net investment 1.80 2.02 2.26 1.90 2.07 2.25 1.64 1.74 1.84 1.95 Free cash flow 0.00 0.00 0.00 0.63 0.69 0.63 1.36 1.30 0.61 0.65 Return on equity 0.12 0.12 0.12 0.12 0.12 0.115 0.11 0.105 0.08 0.08 Asset growth rate 0.12 0.12 0.12 0.09 0.09 Earnings growth rate 0.12 0.12 0.12 0.09 0.09 0.06 0.04 0.04 0.06 0.06 0.06 0.01 -0.19 0.06 Assuming that competition drives down profitability (on existing assets as well as new investment) to 11.5% in year 6, 11% in year 2 10.5% in year 8, and 8% in year 9 and all later years. What is the value of the concatenator business? Assume 11% cost of capital. Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. Present value million
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Transcribed Image Text:Consider the table given below to answer the following question. Year Asset value Earnings 1 2 3 15.00 16.80 18.82 1.80 2.02 2.26 4 21.07 2.53 5 6 22.97 25.04 27.29 7 8 9 10 28.93 30.66 32.50 2.76 2.88 3.00 3.04 2.45 2.60 Net investment 1.80 2.02 2.26 1.90 2.07 2.25 1.64 1.74 1.84 1.95 Free cash flow 0.00 0.00 0.00 0.63 0.69 0.63 1.36 1.30 0.61 0.65 Return on equity 0.12 0.12 0.12 0.12 0.12 0.115 0.11 0.105 0.08 0.08 Asset growth rate 0.12 0.12 0.12 0.09 0.09 Earnings growth rate 0.12 0.12 0.12 0.09 0.09 0.06 0.04 0.04 0.06 0.06 0.06 0.01 -0.19 0.06 Assuming that competition drives down profitability (on existing assets as well as new investment) to 11.5% in year 6, 11% in year 2 10.5% in year 8, and 8% in year 9 and all later years. What is the value of the concatenator business? Assume 11% cost of capital. Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. Present value million
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