Question: Consider a firm with NOPLAT=100 at t=0. The NOPLAT is growing at a rate g forever. The WACC is 0.2. The RETURN ON INVESTED CAPITAL is z.
a. Write down the formula for the value of the firm (V) at t=0 in terms of g and z.
b. For z=0.195, calculate V for these cases: z=0.05, 0.125, 0.18, 0.19 (for the 1st case you should get V= 520.51). What can you conclude from your calculations?
c. Repeat part b with z=0.21. How are the results different from part b? What can you conclude from parts b and c?