Epsilon Consultants Has the Following Projected Free Cash Flows to Equity

question 28

Multiple Choice

Epsilon Consultants has the following projected free cash flows to equity and other information.It has no non-operating assets.Calculate Epsilon's intrinsic value of equity using the FCFE model. $$\begin{array} { l c c r } & \text { Year 1 } & \text { Year 2 } & \text { Year 3 } \\\text { FCFE } & \$ 1,000 & \$ 1,200 & \$ 1,260 \\\text { Long-term FCFE growth } & 5 \% & & \\\text { Required return on } \\\text { equity }& 9 \% & &\end{array}$$ ? ?

• A) $28,440
• B) $31,284
• C) $34,413
• D) $37,854
• E) $41,640

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Definitions:

Unemployment

The situation in which individuals who are capable of working and actively seeking a job are unable to find employment.

Full Employment

Full employment refers to a situation where all available labor resources are being used in the most efficient way possible, with no involuntary unemployment.

Equilibrium GDP

The level of Gross Domestic Product at which the total quantity of final goods and services produced equals the total quantity demanded.

Savings

The portion of income that is not spent on current expenditures and is set aside for future use, often in a bank or investment.