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

question 104

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 present value now (Year 2010) of FCFE during the period of declining growth (that is for years 2015 to 2018) .

• A) $1,719,119
• B) $1,715,784
• C) $1,115,195
• D) $1,434,903
• E) $1,809,171

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Definitions:

Retained Earnings Statement

A financial statement that shows the amount of earnings a company has kept (retained) over a period, which have not been distributed as dividends to shareholders.

Depreciation Expense

The allocation of the cost of a tangible asset over its useful life, reflecting the decrease in value over time.

Paid-in Capital

Funds raised by a company through the sale of its own shares, representing the equity capital provided by investors to the business.

Stockholders' Equity

The residual interest in the assets of a corporation after deducting liabilities, represented by the owners' claims against the company's assets.