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Hi,
In the MBO calculation the value of unbundling the unit is calculated as: ( 435×1.08)/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
There 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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