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:

Controlling

Exercising authority or influence over a situation or individual to dictate or direct outcomes.

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A process in behavior modification where the removal of an unfavorable outcome or stimulus strengthens the likelihood of a desired behavior.

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An electronic device that produces a loud or vibrating sound as a signal or alarm.

Seat Belt

A safety device in vehicles designed to secure the occupant against harmful movement that may result during a collision or a sudden stop.