USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

question 115

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 would the estimated value of the U.S. market be today using the FCFE approach, if the growth rate was expected to be a constant 8 percent indefinitely, instead of the 10 percent and 7 percent estimates?

• A) 4,500
• B) 4,728
• C) 4,860
• D) 4,923
• E) 5,042

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Definitions:

ABAB Reversal Design

A research design involving alternating periods of applying and withdrawing treatment to see how behavior changes.

Alternative Explanations

Different theories or reasons that may explain observations or facts, aside from the primary hypothesis.

Reversal Design

An experimental design that involves repeatedly applying and removing a treatment to observe if doing so results in corresponding changes in the dependent variable.

Designated Drivers

Individuals chosen to abstain from alcohol in order to drive others safely to their destinations.