Exhibit 13 From Year 2013 Onward Growth in FCFE Is Expected to

question 49

Multiple Choice

Exhibit 13.2
Use the Information Below for the Following Problem(S)
At the end of the year 2004 the Office Equipment Industry had free cash flow to equity (FCFE) of $2.50 per share. The following annual growth rates in FCFE are projected:
$$\begin{array} { c c } \text { Year } & \text { Grapth Rata } \\\hline 2005 & 10 \% \\2006 & 15 \% \\2007 & 20 \% \\2008 & 25 \% \\2009 & 20 \% \\2010 & 15 \% \\2011 & 10 \% \\2012 & 7 \%\end{array}$$
From year 2013 onward growth in FCFE is expected to remain constant at 5% per year. The industry has a beta of 0.90 and the current industry price is $105. Currently the yield on 10-year Treasury notes is 5% and the equity risk premium is 4%
-Refer to Exhibit 13.2.Calculate the present value now (Year 2004) of FCFE during the period of declining growth (that is for years 2009 to 2012) .

• A) $17.19
• B) $14.15
• C) $11.59
• D) $15.78
• E) $18.09

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Definitions:

Population Mean

The average value of a population attribute.

Population Standard Error

The standard deviation of a sampling distribution, measuring the dispersion of sample means around the population mean.

Confidence Interval

A range of values, derived from the statistics of observed data, that is likely to contain the value of an unknown population parameter.

Mean

The average of a set of numbers, calculated by dividing the sum of all values by the number of values.