Exhibit 14 From Year 2019 Onward Growth in FCFE Is Expected to

question 72

Multiple Choice

Exhibit 14.7
Use the Information Below for the Following Problem(S)
At the end of the year 2010 the BRK Corporation had free cash flow to equity (FCFE) of $250,000 and shares outstanding of 200,000. The company projects the following annual growth rates in FCFE:
$$\begin{array} { c c } \text { Year } & \text { Grapth Rata } \\\hline 2011 & 10 \% \\2012 & 15 \% \\2013 & 20 \% \\2014 & 25 \% \\2015 & 20 \% \\2016 & 15 \% \\2017 & 10 \% \\2018 & 7 \%\end{array}$$
From year 2019 onward growth in FCFE is expected to remain constant at 5% per year. The stock has a beta of 1.3 and the current market price is $55. Currently the yield on 10-year Treasury notes is 5% and the equity risk premium is 4%.
-Refer to Exhibit 14.7.Calculate the required rate of return on equity.

• A) 5%
• B) 9.2%
• C) 10.2%
• D) 10%
• E) 4.3%

---

Definitions:

Nominal Group Method

An exercise that encourages creativity within a group framework by allowing everyone to offer ideas individually.

Writing

The act of composing text for various purposes such as communication, expression, and documentation.

Intelligence

Traditionally seen as reasoning ability, as measured by standardized tests.

Rewarding

Pertains to providing positive reinforcement or advantages as a result of someone's actions or behavior, enhancing motivation.