土豆妮

Ashley Winters, CFA, has been hired to value Goliath Communications, a company that is currently undergoing rapid growth and expansion. Ashley is an expert in the communications industry and has had extensive experience in valuing similar firms. She is convinced that a value for the equity of Goliath can be reliably obtained through the use of a three-stage free cash flow to equity (FCFE) model with declining growth in the second stage. Based on up-to-date financial statements, she has determined that the current FCFE per share is $0.90. Ashley has prepared a forecast of expected growth rates in FCFE as follows:

Stage 1:	10.5% for years 1 through 3
Stage 2:	8.5% in year 4, 6.5% in year 5, 5% in year 6
Stage 3:	3% in year 7 and thereafter

Moreover, she has determined that the company has a beta of 1.8, the current risk-free rate is 3%, and the equity risk premium is 5%.

The required return and terminal value in year 6 are closest to:

Required return

Terminal value in year 6

A) 12% $16.867

B) 9% $16.867

C) 12% $12.650

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Based on the CAPM we can estimate a required return on equity as:

Required return = 3% + 1.8(5%) = 12%

Estimates for the future FCFE based on supplied growth rates are:

Year	1	2	3	4	5	6	7
Growth rate	10.5%	10.5%	10.5%	8.5%	6.5%	5%	3%
FCFE/share	$0.995	$1.099	$1.214	$1.318	$1.403	$1.473	$1.518

R_$ = 1.518/(12% - 3%) = 16.867

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The per-share value Winters should assign to Goliath’s equity is closest to:

A) $13.55.

B) $20.24.

C) $16.87.

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We find the value of the equity/share by discounting all future FCFE/share by the required rate of return on equity.

Using the calculator, enter CF₀ = 0; C01 = 0.995; C02 = 1.099; C03 = 1.214; C04 = 1.318; C05 = 1.403; C06 = 1.473 + 16.867 = 18.34; I = 12; Compute →?NPV = 13.55.