Question

23) The growth in per share FCFE of FOX, Inc. is expected to be 15% per year for the next three years, followed by a growth rate of 8% per year for two years. After this five-year period, the growth in per share FCFE is expected to be 3% per year, indefinitely. The required rate of return on FOX, Inc. is 13%. Last year's per share FCFE was $1.85. The first three dividends are worth today. A) $100 B) None of the above C) $9.39 D) $12.14 E) $3.81

Answer 1

Solution - FCFE per share last year (F(FEO) – $1.85 Growth rate for year 1 to 3 (g) = 15 % or 0.15 Required Return (r) = 13% or 0.13 Firstly, will we calculate FCFE for next 3 years. FC FE F(FEO (1+g) $1.85 (1+0.15) $2.1275 FCFE2 FORE, (i+g $2,1275 (17 0.15) 2 $2.1275 (1.15) a $2.446625

FCFE₂ FCFE2 (149) $ 2.446625 (170.15) $2.446625 (1015) 2.81361875 Present value of the dividend 07 FORE for first three years =) FCFEI FCFE3 + FCFE2 (1+) + (1+4)! (lte3 $2.1275 (1+0.13) 7 $2.446625 (1+0.13)2 t $ 2.81361875 (1 +0.13) $2.1275 1.13 t $2.446625 11.13)2 + $2.81361875 (1-1333 = $1.8827433 6 + $ 1,916066257 $1.94997893 $5.74878854 $5.75 So, the right option is (B) None of the Above