Question #46

Reading: Reading 21 Free Cash Flow Valuation

PDF File: Reading 21 Free Cash Flow Valuation.pdf

Page: 21

Status: Correct

Correct Answer: A

Part of Context Group: Q46-48 First in Group
Shared Context
- The terminal value in year 6 is closest to: A) $16.86. B) $21.68. C) $25.29.
Question
The per-share value Winters should assign to Goliath's equity is closest to:
Answer Choices:
A. $20.24
B. $13.55
C. $16.87
Explanation
We find the value of the equity/share by discounting all future FCFE/share by the required rate of return on equity. Using our calculator, enter CF0 = 0; C01 = 0.995; C02 = 1.099; C03 = 1.214; C04 = 1.318; C05 = 1.403; C06 = 1.473 + 16.867 = 18.34; I = 12; Compute →NPV = 13.55.
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