Estimate the value of the operating assets of the firm today

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Gato Negro Inc. is a publicly traded firm, with 26 million shares trading at $17/share (book value of equity is $240 million), $290 million in debt outstanding (market and book value) and $50 million as a cash balance. The company generated $60million in after-tax operating income last year and is expected to maintain its current return on capital in perpetuity. The cost of equity for the firm is 13% and the cost of capital is 9% in perpetuity.

a. Assuming that the company is expected to grow its operating income 9% a year for the next three years and 3.3% a year thereafter in perpetuity, estimate the value of the operating assets of the firm today.

b. Given your valuation in part a, how under or over valued is the stock today.

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The assignment is about the financial management. The valuation of the assets is the requirement of the solution. The same has been done with proper formulas and linking in the excel file.

Reference no: EM132036505

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8/27/2018 1:20:31 AM

I like Experts Mind.com !!! Expert which worked on my assignment is very good and intelligent. He put all the exact values on excel sheet correctly and the solution is perfect.

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