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Vernon enterprises has current after-tax operating income

Question: Vernon Enterprises has current after-tax operating income of $ 100 million and a cost of capital of 10%. The firm earns a return on capital equal to its cost of capital.

a. If we assume that the firm is in stable growth, growing 5% a year forever, estimate the firm's reinvestment rate.

b. Given this reinvestment rate, estimate the value of the firm.

c. What is the value of the firm, if you assume a zero reinvestment rate and no growth?

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Finance Basics: Vernon enterprises has current after-tax operating income

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