Assuming that competition drives down profitability (on existing assets as well as new investment) to 11.5% in year 6, 11% in year 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
Assuming that competition drives down profitability (on existing assets as well as new investment) to 11.5% in year 6, 11% in year 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
Chapter7: Valuation Of Stocks And Corporations
Section: Chapter Questions
Problem 23SP
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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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