In five years, a firm is expected to be operating in a stage of its life cycle wherein its expected growth rate is 5%, indefinitely; its required rate of return on equity is 11%; its weighted average cost of capital is 9%; and the free cash flow to equity in year 6 will be $5.25 per share. What is its projected terminal value at the end of year 5?

A) $87.50.

B) $51.93.

C) $131.25.

[此贴子已经被作者于2011-3-21 11:30:17编辑过]

Terminal value in a multi-stage free cash flow to equity (FCFE) valuation model is often calculated as the present value of:

A) a two-stage valuation model's price.

B) free cash flow divided by the growth rate.

C) FCFE divided by the total of required rate on equity minus growth.

Terminal value in multi-stage free cash flow valuation models is often calculated as the present value of:

A) a two-stage valuation model's price.

B) free cash flow divided by the growth rate.

C) a constant growth model's price as of the beginning of the last stage.

In the two-stage FCFE model, the required rate of return for calculating terminal value should be:<

A) lower than the required rate of return used for the high-growth phase.

B) higher than the required rate of return used for the high-growth phase.

C) equal to the average required rate of return for the industry.