Reference no: EM132753933

Crabbe Steel owns a number of steel plants in Pennsylvania. The firm reported set capital expene after-tax operating income of $40 million in the most recent year on vested of $400 million. The firm expects operating income to grow 7% a year

Problem a. If the firm's cost of capital is 10% and you expect the firm's current return on capital to continue in perpetuity, estimate the value at the end of the third

Problem b. If you expect operating income to stay fixed after year 3 (what you earn in year 3 is what you will earn every year thereafter), estimate the terminal

Problem c. If you expect operating income to drop 5% a year in perpetuity after year 3, capital in- for the next three years, and 3% thereafter. year. value. estimate the terminal value.