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Construct the ROIC growth matrix based on the following assumptions: 10% cost of capital, 3-year horizon after which ROIC = WACC. The expected net operating profit less adjusted taxes at time 1 (NOPLAT) = $12,500. Vary ROIC from 8% to 12% in 2% intervals and growth (g) from 4% to 8% in 2% intervals.

Complete the following matrix, show detailed calculations for each number. Also, provide your interpretation of the pattern observed in the matrix.

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\begin{tabular}{|l|l|l|l|} \hline gROIC & 8% & 10% & 12% \\ \hline 4% & & & \\ \hline 6% & & & \\ \hline 8% & & & \\ \hline \end{tabular} A. Present Value of FCFs in the Constant Growth Perpetuity Model V is the present value of FCF1,FCF2,.,FCF g is the constant growth rate in FCFs WACC is the weighted cost of capital, used as the discount rate FCFV=NOPLATNetInvestment=NOPLATNOPLATIR)=NOPLAT(1IR)=NOPLAT(1g/ROIC)=WACCgFCF1=WACCgNOPLAT(1ROICg) B. Present Value of FCFs in the Supernormal Growth or Nonconstant Growth Model Value of operating FCFs =[PV of FCFs in the forecast horizon ]+[PV of FCFs beyond the forecast horizon] Assume n-period forecast horizon, so value of operating FCFs (V) is: V=i=1(1+WACC1FCF1=(1+WACC1FCF1++(1+WACCnFCFn+(1+WACCnTVnTV0=WACCngFCFn+1 TVn is the terminal value or continuing value at the end of period n. V=t=1(1+WACC1FCF1=(1+WACC)1FCF1++(1+WACCFCFn+(1+WACC)TVaTVn=WACCgFCFn+1 TVn is the terminal value or continuing value at the end of period n. Formula Sheet For example, assume a 2-period forecast horizon, V is: V=(1+WACC)1FCF1+(1+WACC)2FCF2+(1+WACC2TV2TV2=WACC8FCF3

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