Question

QUESTION 2 Use the following information to find the NOPLAT in year t+1 that yields the continuing value expressed below (Round to the nearest million): • NOPLAT growth rate = 1.5% • Return on new invested capital = 9% • Weighted average cost of capital = 6.8% • Continuing value = $1,750 million O a. $95 million b. $184 million c. $111 million Od. $105 million

Answer 1

Compute the NOPLAT in year t+1, using the equation as shown below:

NOPLAT = {Continuing value*(WACC – Growth rate)}/{1 – (Growth rate/ ROIC)}

                 = {$1,750 million*(6.80% – 1.50%)}/{1 – (1.5%/ 9%)}

                 = ($1,750 million*5.3%)/ 0.83333333334

                 = $111 million

Hence, the NOPLAT in year t+1 is $111 million.