Exhibit 9-7
USE THE FOLLOWING INFORMATION IS FOR THE NEXT

question 27

Multiple Choice

Exhibit 9-7
USE THE FOLLOWING INFORMATION IS FOR THE NEXT PROBLEM(S)
At the end of the year 2009 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. $$\begin{array} { c c } \text { Year } & \text { Grawth Rate } \\\hline 2010 & 10 \% \\2011 & 15 \% \\2012 & 20 \% \\2013 & 25 \% \\2014 & 20 \% \\2015 & 15 \% \\2016 & 10 \% \\2017 & 7 \%\end{array}$$
From year 2018 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 9-7. Calculate the present value now (Year 2009) of FCFE during the period of increasing growth (that is for years 2010 to 2013) .

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

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