What is the flaw in your colleague arguement

Reference no: EM13284335

SuperiorCo earns a return on invested capital of 20 percent on its existing stores. Given intense competition for new stores sites, you believe new stores will only earn their cost of capital. Consequently, you set return on new capital (8 percent) equal to the cost of capital (8 percent) in the continuing value formula. A colleague argues that this is too conservative, as SuperiorCo will create value well beyond the forecast period. What is the flaw in your colleague's arguement?

Reference no: EM13284335

Questions Cloud

Does higher growth lead to a higher multiple in this case : Both companies have an operating tax rate of 25 percent and a cost of capital of 10 percent. What are the etnerprise-value-to-EBITA multiples for both companies? Does higher growth lead to a higher multiple in this case?

What are operating profits and invested capital expected : what are operating profits and invested capital expected to be next year? What are two critical operating assumptions (identify one for profits, and one for capital) embedded in this forecast method?

Explain what happens to the charge on the polyatomic ion : Look at the table of polyatomic ions and determine what happens to the charge on the polyatomic ion, phosphate when an H+ is added to the formula. What is the new name

Implement the sequence detector mealy state machine : Design a Mealy state machinethat is a *majority vote* detector that indicates when the majorityof the last three samples received are ones. When at least 2out of the last 3 inputs received are ones, it will output a1.

What is the flaw in your colleague arguement : A colleague argues that this is too conservative, as SuperiorCo will create value well beyond the forecast period. What is the flaw in your colleague's arguement?

Find what kind of emc filter is needed to reduce emissions : What kind of EMC filter is needed to reduce emissions from aDC motor. The motor is connected in series with a battery. Anycomponents can be used to design the filter.

State what is the molarity of the solution : If 57.0 mL of BaCl2 solution is needed to precipitate all the sulfate ion in a 754 mg sample of Na2SO4 , what is the molarity of the solution

Determine which would be no financial benefit to the owner : According to the tariff the owner agreedwith the utility company, the income generated is $0.16 per kWh atany time of the day. This figure is expected to rise annualy by20%. Ignore interst rates, any fluctuations in dollar etc.

How far apart are the plane and ship : A radar station locates a sinking ship at range 18.1 km and bearing 136° clockwise from north. How far apart are the plane and ship

User Account

All Pages