Question #71
Reading: Reading 21 Free Cash Flow Valuation
PDF File: Reading 21 Free Cash Flow Valuation.pdf
Page: 34
Status: Unattempted
Part of Context Group: Q70-71
Shared Context
Question
Based on Analyst #2's estimates, the value of Hiller stock is closest to:
Answer Choices:
A. €60.70
B. €59.70
C. €57.00
Explanation
Year
0
1
2
3
4
5
6
7
Growth rate
12.5%
12.5%
12.5%
8.0%
6.5%
5.0%
3.0%
FCFE/share
€3.850
€4.331
€4.873
€5.482
€5.893
€6.335
€6.620
€6.818
Terminal value year 6 = 6.818/(12.0% − 3.0%) = €75.76
For the calculator find NPV: CF0 = 0, CF1 = €4.33, CF2 = €4.87, CF3 = €5.48, CF4 = €5.89, CF5
= €6.34, CF6 = €82.38, I/Y = 12. The result is €60.73.