what is this supposed to mean ?
" Capital spending is expected to be offset by depreciation"
firm 1 firm 2
revenue 4400 3125
cogs 2200 1750
dep 200 74
tax 35% 35%
working cap 10% of revenue 10% of revenue
Mkt val of eq 2000 1300
o/s debt 160 250
Both firms are in a steady state and are expected to grow at 5% a year in the long-term. Capital spending is expected to be offset by depreciation. The beta for both the firms is 1, and both firms are rated BBB, with an interest rate on their debt of 8.5%. (The Treasury bond rate is 7 % and the risk premium is 5.5 %.)
i understand the rest of the sum but what doues that part mean and what is it's implication ?
CAclubindia
