Question
Assume that the 500 firms in the S&P 500 index are expected to produce a free cash flow to equity of $115.27 per share last
Assume that the 500 firms in the S&P 500 index are expected to produce a free cash flow to equity of $115.27 per share last year. The average growth rate of free cash flows in the previous 14 years is 5.1%. If investors believe that the annual growth rate of cash flows in all future years will be the same as the average growth rate over the past 14 years. The current index level (average price per share) is 3842. According to the constant FCFE model, what must be the discount rate that investors are applying to the stock market? Please Show Work
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