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Valuing a business (S4.6) Mexican Motors' market cap is 200 billion pesos. Next year's free...

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Accounting

Valuing a business (S4.6) Mexican Motors' market cap is 200 billion pesos. Next year's free cash flow is 8.5 billion pesos. Security analysts are forecasting that free cash flow will grow by 7.5% per year for the next five years. Assume that the 7.5% growth rate is expected to continue forever.
Hint: at the aggregate level, market cap is similar to price per share (P0), and free cash flow is similar to dividend per share (DIV1).
For simplicity you can enter the values in billion pesos, where applicable.
a. What rate of return are investors expecting?
12.07
%(enter the value in xx.xx format in percent)
Mexican Motors has generally earned about 12% on book equity (ROE =12%) and reinvested 50% of earnings. The remaining 50% of earnings has gone to free cash flow. Suppose the company maintains the same ROE and investment rate for the long run.
b. What is the growth rate of earnings and free cash flow?
6.00
%(enter the value in x.xx format in percent)
c. If the growth rate of earning is part b was g=5%, what is the new rate of return)?
5.03
%(enter the value in x.xx format as percentage)

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