Exhibit 12.7 Use the Information Below for the Following Problem(S)

Exhibit 12.7
Use the Information Below for the Following Problem(S)
You are using the free cash flow to equity (FCFE) technique to analyze U.S. equity market. The beginning FCFE is $90 and the required rate of return is 10%. Free cash flows are expected to grow at a 10% rate for the next two years and then grow at a constant rate of 7% forever.
-Refer to Exhibit 12.7.What would the estimated value of the U.S.market be today using the FCFE approach,if the growth rate was expected to be a constant 8% indefinitely,instead of the 10% and 7% estimates?

A) 4,500
B) 4,728
C) 4,860
D) 4,923
E) 5,042