A student wants to value a firm's market value, he starts his model from forecasting...
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Accounting
A student wants to value a firm's market value, he starts his model from forecasting Equity Free Cash Flow (FCFE):
The target firm has the following FCFE,
$10 million next year;
$20 million the year after;
$30 million in 3 years;
and at year 3, the terminal value can be calculated based on similar firms' expected PE multiple of 10.
The earnings over year 3 are 2 times of year 3 FCFE and the payout ratio is 50% and all FCFE is comprised of dividends.
Note that the year 3 terminal valuation PE multiple excludes the cash flows paid at year 3.
The nominal required return on equity is 6% pa.
All rates are effective annual rates.
What is the firms current value of equity?
a.
$531.01 million
b.
$660.00 million
c.
$600.00 million
d.
$604.39 million
e.
$556.19 million
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