If NOPLATt+1 = $1,200, g = 2%, RONIC = 15%, WACC = 13%, then continuing value...

If NOPLATt+1 = $1,200, g = 2%, RONIC = 15%, WACC = 13%, then continuing value in year t is closest to:

a.) $8,741

b.) $7,933

c.) $9,133

d.) $10,000

e.) $9,454

Solutions

Expert Solution

Continuing value of a firm can be calculated as follows:

Continuing value_t = [NOPLAT_t+1 * ( 1- g/RONIC) ] / (wacc - g)

where, NOPLAT is the after tax operating profit for year t + 1

RONIC is the return on new invested capital

g = expected long term growth of revenue and cash flows

wacc = cost of capital for the company

Continuing value_t = [ 1200 * ( 1 - 0.02/0.15) ] / (0.13 - 0.02)

= 1200 * (1 - 0.1333) / (0.11)

= 1200 * 7.8788

= 9454.54

Option e $9454

jeff jeffy answered 11 months ago

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