Question
An analyst forecasts a firm's nominal Equity Free Cash Flows to be: $10 million next year (t=1); $20 million the year after (t=2); $30 million
An analyst forecasts a firm's nominal Equity Free Cash Flows to be:
$10 million next year (t=1);
$20 million the year after (t=2);
$30 million in 3 years (t=3); and
From year 3 onwards, the nominal EFCF is expected to grow at the country's nominal GDP growth rate forever.
The perpetuity formula can be used to find the terminal value of this stock.
The nominal required return on equity is 6% pa.
The analyst forecasts GDP growth to be 1% pa in real terms or constant prices from year 3 onwards.
Inflation is expected to be 1.5% pa from year 3 onwards. All rates are effective annual rates.
What is the firms market capitalisation of equity?
Select one:
a. $860.8321 million
b. $829.0469 million
c. $793.3714 million
d. $750.0052 million
e. $438.469 million
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started