Mercadolibre is an Argentinian based online shopping platform partially owned by Amazon. The company has had moderate success growing their topline at a steady rate of 30% while maintaining 18.5% net margins that they expect to maintain for the next three years. In year 4, residual income is expected to grow at 7.2% indefinitely. In FY 2018 they generated ARP 25,458,900,000 in revenue while their balance sheet showed that they had ARP 96,236,000,000 in assets while also having ARP 53,987,120,000 in liabilities. The company maintains a dividend policy of 4.2%. The required return on equity is 13.65%.
a. What is the initial Book Value of Mercadolibre?
b. What is the residual income in 2019?
c. What is the value of the company in 2018?
d. What would be a problem with using the residual income model for Mercadolibre?
