USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

question 11

Multiple Choice

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
You are using the free cash flow to equity (FCFE) technique to analyze the U.S. equity market. The beginning FCFE is $90, and the required rate of return is 10 percent. Free cash flows are expected to grow at a 10 percent rate for the next two years and then grow at a constant rate of 7 percent forever.
-Refer to Exhibit 9.7. What will FCFE be three years from now?

• A) 108.90
• B) 116.52
• C) 117.00
• D) 119.79
• E) 120.21

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Definitions:

Profitability Index

A financial tool that calculates the relationship between the costs and benefits of a project by dividing the present value of future cash flows by the initial investment.

Limited Funds

A condition where resources, especially money, are finite or restricted in availability.

Net Present Value

A valuation method that calculates the value of future cash flows in today's dollars by discounting them at a particular rate.