Problem 7-35 Valuing Businesses.(LO3) Consider the table given below to answer the following question. Year Asset value Earnings Net investment Free cash flow Return on equity Asset growth rate Earnings growth rate 2 3 5 6 11.20 12.54 14.05 15.31 16.69 1.51 1.69 1.84 2.00 1.51 1.26 1.38 0.42 0.46 0.12 0.12 0.09 0.09 0.12 0.09 Present value 1 10.00 1.20 1.34 1.20 1.34 0.00 0.00 0.00 0.12 0.12 0.12 0.12 0.12 0.12 0.12 0.12 1.50 0.50 0.12 0.09 0.09 million 7 18.19 2.18 8 19.29 2.31 1.09 1.16 1.09 1.16 0.12 0.12 0.06 0.06 0.09 0.06 9 20.44 10 21.67 2.60 1.30 1.30 Assuming that competition drives down profitability (on existing assets as well as new investment) to 11.5% in year 6, 11% in year 7, 10.5% in year 8, and 8% in year 9 and all later years. What is the value of the concatenator business? Assume 10% cost of capital. Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. 2.45 1.23 1.23 0.12 0.12 0.06 0.06 0.06 0.06
Problem 7-35 Valuing Businesses.(LO3) Consider the table given below to answer the following question. Year Asset value Earnings Net investment Free cash flow Return on equity Asset growth rate Earnings growth rate 2 3 5 6 11.20 12.54 14.05 15.31 16.69 1.51 1.69 1.84 2.00 1.51 1.26 1.38 0.42 0.46 0.12 0.12 0.09 0.09 0.12 0.09 Present value 1 10.00 1.20 1.34 1.20 1.34 0.00 0.00 0.00 0.12 0.12 0.12 0.12 0.12 0.12 0.12 0.12 1.50 0.50 0.12 0.09 0.09 million 7 18.19 2.18 8 19.29 2.31 1.09 1.16 1.09 1.16 0.12 0.12 0.06 0.06 0.09 0.06 9 20.44 10 21.67 2.60 1.30 1.30 Assuming that competition drives down profitability (on existing assets as well as new investment) to 11.5% in year 6, 11% in year 7, 10.5% in year 8, and 8% in year 9 and all later years. What is the value of the concatenator business? Assume 10% cost of capital. Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. 2.45 1.23 1.23 0.12 0.12 0.06 0.06 0.06 0.06
Fundamentals Of Financial Management, Concise Edition (mindtap Course List)
10th Edition
ISBN:9781337902571
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Eugene F. Brigham, Joel F. Houston
Chapter4: Analysis Of Financial Statements
Section: Chapter Questions
Problem 17P: CONCEPTUAL: RETURN ON EQUITY Which of the following statements is most correct? (Hint: Work Problem...
Related questions
Question
Transcribed Image Text:Problem 7-35 Valuing Businesses.(LO3)
Consider the table given below to answer the following question.
Year
Asset value
Earnings
Net investment
Free cash flow
Return on equity
Asset growth rate
Earnings growth rate
1
10.00
1.20
Present value
1.20
0.00
0.12
0.12
2
11.20
1.34
1.34
0.00
0.12
0.12
0.12
3
12.54
million
1.51
1.51
0.00
0.12
0.12
0.12
4
5
14.05 15.31
1.84
1.38
0.46
0.12
0.09
0.09
1.69
1.26
0.42
0.12
0.09
0.12
6
16.69
2.00
1.50
0.50
0.12
0.09
0.09
10
7
8
18.19 19.29
2.18
21.67
2.31
2.60
1.09
1.16
1.30
1.09
1.16
1.30
0.12
0.12
0.12
0.12
0.06
0.06
0.06
0.06 0.06 0.06
0.06
0.09
Assuming that competition drives down profitability (on existing assets as well as new investment) to 11.5% in year 6, 11% in year 7,
10.5% in year 8, and 8% in year 9 and all later years. What is the value of the concatenator business? Assume 10% cost of capital.
Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.
9
20.44
2.45
1.23
1.23
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Fundamentals Of Financial Management, Concise Edi…
Finance
ISBN:
9781337902571
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Financial Reporting, Financial Statement Analysis…
Finance
ISBN:
9781285190907
Author:
James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:
Cengage Learning
Fundamentals of Financial Management, Concise Edi…
Finance
ISBN:
9781305635937
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Fundamentals Of Financial Management, Concise Edi…
Finance
ISBN:
9781337902571
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Financial Reporting, Financial Statement Analysis…
Finance
ISBN:
9781285190907
Author:
James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:
Cengage Learning
Fundamentals of Financial Management, Concise Edi…
Finance
ISBN:
9781305635937
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Fundamentals of Financial Management, Concise Edi…
Finance
ISBN:
9781285065137
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning