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

question 81

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 constant growth (that is for years 2013 onwards) .

• A) $116.15
• B) $97.03
• C) $155.58
• D) $89.86
• E) $67.89

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Definitions:

Modeling

A learning technique based on observing and imitating the behavior of others, often used in therapy and behavior modification programs.

Prompting

In behavioral psychology, it involves giving cues or hints to facilitate the desired response from an individual.

Shaping

A method of operant conditioning by which successive approximations of a desired behavior are reinforced until the exact behavior is achieved.

Reinforcement

In psychology, a process by which a behavior is strengthened or increased, often through rewards or positive outcomes, following its occurrence.