Hi,
In the MBO calculation the value of unbundling the unit is calculated as: ( 435x1.08)/0.10 they are dividing by the cost of capital only but what about the growth rate? why isn't it substarcted from the cost of capital?
Thanks
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Question1 Mar/Jun 17 exam
7y ago#1There is no growth rate (apart from the first year).
The question specifically states (under the heading "Machinery parts manufacturing business unit"):
"In this case, it is estimated that its after-tax net cash flows will increase by 8% in the first year only and then stay fixed at this level for the foreseeable future."
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