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Problem 2. [8 pts]. Angel D. Company has net working capital of S350,000 that it expects to grow at a rate of 10% per year fo

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Answer #1

At 10% growth rate:

Value = NWC(1 + g) / [r - g]

= $350,000(1.10) / (0.15 - 0.10) = $385,000 / 0.05 = $7,700,000

At 5% growth rate:

Value = NWC(1 + g) / [r - g]

= $350,000(1.05) / (0.15 - 0.05) = $367,500 / 0.05 = $7,350,000

Change in Value = $7,700,000 - $7,350,000 = $350,000

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