Expected Growth Model

Essay specific features

 

Issue:

Business

 

Written by:

Margo L

 

Date added:

July 5, 2016

 

Level:

University

 

Grade:

A

 

No of pages / words:

3 / 759

 

Was viewed:

7182 times

 

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This methodology takes into account the two principal determinants of growth, namely quality of investments (Return on Capital ---- ROC) and reinvestment policy (Reinvestment Rate –-- RIR) and is expressed as: Exp g = (ROC)(RIR) Where: ROC = EBIT(1-t) / CapInvest RIR = Capex – Depr + ? non-cash W/C / EBIT(1-t) and Non-cash Working Capital is defined as: Non-cash W/C = Non-cash current assets - non-interest-bearing current liabilities Non-interest bearing debt generally excludes short term debt and the short term portion of long term debt...
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For current non-cash liabilities the principle items are accounts payable, taxes payable, and salaries payable. For purposes of analysis, we often treat changes in non-cash working capital as we would “investments” because they affect the analysis of projects as well as aid in the determination of firm value...
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