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

question 48

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 increasing growth (that is for years 2005 to 2008) .

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

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Definitions:

David Rosenhan

A psychologist known for his influential study "On Being Sane in Insane Places," which challenged the validity of psychiatric diagnoses.

Pseudo-Patients

Individuals who simulate illness to study the treatment environment and practices within mental health institutions, notably in the Rosenhan experiment.

Differential Association

A theory in criminology suggesting that individuals learn deviant behavior from those close to them who provide models of and opportunities for deviance.

Deviant Peers

Individuals within a peer group who engage in activities considered deviant by mainstream society, potentially influencing others to do the same.