Question #87
Reading: Reading 21 Free Cash Flow Valuation
PDF File: Reading 21 Free Cash Flow Valuation.pdf
Page: 41
Status: Unattempted
Question
A firm's free cash flow to equity (FCFE) in the most recent year is $50M and is expected to grow at 5% per year forever. If its shareholders require a return of 12%, the value of the firm's equity using the single-stage FCFE model is:
Answer Choices:
A. $714M
B. $417M
C. $750M
Explanation
The value of the firm's equity is: $50M × 1.05 / (0.12 − 0.05) = $750M