Siri had a FCFE of $1.6M last year and has 3.2M shares outstanding.Siri's required return on equity is 12%, and WACC is 9.8%.If FCFE is expected to grow at 9% forever, the intrinsic value of Siri's shares is

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Quizplus · Accepted Answer

The intrinsic value of Siri's shares can be calculated using the Gordon Growth Model for Free Cash Flow to Equity (FCFE), which is given by the formula: $$ \text{Value per share} = \frac{\text{FCFE}_1}{r - g} $$ where $\text{FCFE}_1$ is the expected FCFE for the next year, $r$ is the required return on equity, and $g$ is the growth rate of FCFE.Given that FCFE last year was $1.6M and is expected to grow at 9%, the FCFE for the next year ($\text{FCFE}_1$) would be: $$ \text{FCFE}_1 = 1.6M \times (1 + 0.09) = 1.6M \times 1.09 = $1.744M $$The required return on equity ($r$) is 12%, or 0.12, and the growth rate ($g$) is 9%, or 0.09.Plugging these values into the formula gives: $$ \text{Value per share} = \frac{1.744M}{0.12 - 0.09} = \frac{1.744M}{0.03} = $58.13M $$Given there are 3.2M shares outstanding, the value per share is: $$ \text{Value per share} = \frac{58.13M}{3.2M} = $18.17 $$Therefore, the correct answer is B, $18.17.

Siri Had a FCFE of $1