You Decide to Value a Steady‐state Company Using Probability‐weighted Scenario

question 5

Multiple Choice

You decide to value a steady‐state company using probability‐weighted scenario analysis.In scenario 1,NOPLAT is expected to grow at 8 percent,and ROIC equals 20 percent.In scenario 2,NOPLAT is expected to grow at 2 percent,and ROIC equals 10 percent.Next year's NOPLAT is expected to equal $100 million,and the weighted average cost of capital is 12 percent.Using the key value driver formula,what is the enterprise value in each scenario? If each scenario is equally likely,what is the enterprise value for the company?

• A)Value in scenario 1 is $1,500m;value in scenario 2 is $800m;weighted value = $1,150m.
• B)Value in scenario 1 is $800m;value in scenario 2 is $1,500m;weighted value = $1,150m.
• C)Value in scenario 1 is $800m;value in scenario 2 is $1,500m;weighted value = $2,300m.
• D)Value in scenario 1 is $1,500m;value in scenario 2 is $800m;weighted value = $2,300m.

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Definitions:

\(10,000(1.09)^{3t}\)

An exponential function, often used in finance to calculate compounded interest or investment growth over time.

Three Decimal Places

Referring to a numerical precision that includes three digits to the right of the decimal point.

\(50e^{-0.1x}\)

A mathematical expression representing exponential decay, where \(e\) is the base of the natural logarithm.

Three Decimal Places

Refers to numbers that are rounded or precise to the third digit after the decimal point.