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Hi John,
I would like to ask if I am using an “average growth rate of operating profit margin” for Fodder Co in computing the Fodder cash flow for the next four years, will my answer gain any mark? The reason I used average growth rate of operating profit margin because I notice that the last 4 years of Fodder’s operating profit margin varies every year.
Hence, my firm value will be $35m but the answer is $40m
Thanks so much in advance!
You would certainly get some marks.
However, the question does specifically state that the revenue will grow at the average rate of the last four years.
(If the profit margin had stayed constant, then the operating profit would have grown at the same rate as well and there would have been no problem. As it turns out the profit margin did change and so you need to use an average here as well.)
Sir my question is while calculating average growth of four years, number of years ( n) as 3. not 4. why?
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