8 ), the resulting cost of equity is 9.98%:
Startinginyear6,Tsingtaowilltransitiontoastablegrowth
rate of 5.5% in year 10.
9 Tocomputetheequityreinvestmentrateinperpetuitywe
will assume that the return on equity will drop in stable
growth to the cost of equity of 9.98%.
TovalueTsingtao,webeginbyprojectingthefreecashflows
toequityduringthehigh-growthandtransitionphases,using
an expected growth rateof 13.74% in net income and an
equityreinvestment rateof45.49%for thefirstfiveyears.
Thefollowingfiveyearsrepresentatransitionperiod,where
thegrowthdropsinlinearincrementsfrom13.74%to5.5%
and the equity reinvestment rate moves from 45.49% to
55.11%.Theresultingfreecashflowstoequityareshownin
the following table: