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Build a two-variable table showing the value of a company whose after-tax profit is $1,000 for...

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Question

Finance

Build a two-variable table showing the value of a company whoseafter-tax profit is $1,000 for different values of g and ROIC.Assume r, the discount rate, is 10%.

ROIC (horizontal axis): between 6% and 16% (increments of 2%) g(vertical axis): between 0 and 8% (increments of 2%)

Use Excel’s Data Table function in the Data/What-if Analysistab

Questions:

1. What do you notice when g increases? Explain.

2. What happens when r = ROIC? Why is that so?

Answer & Explanation Solved by verified expert
4.2 Ratings (848 Votes)
1 It is seen that as g increases the value of the firmdecreases when ROIC is below the discount rate while the    See Answer
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