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Lyondell Inc. is a conglomerate with a value-to-book capital ratio of 2.0. If the firm is...

Lyondell Inc. is a conglomerate with a value-to-book capital ratio of 2.0. If the firm is in stable growth, expecting to grow 4 % a year in perpetuity, and has a cost of capital of 10%, what return on capital is the market assuming in perpetuity for Lyondell?

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Answer #1

Value to book 2*0.06 0.12 (0.12+0.04) 0.16 16.00% (ROC-g)/(ke-g) (ROC-0.04)/(0.10-0.04) ROC-0.04 ROC-0.04 ROC ROC ROC = = Ret

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