Zero had a FCFE of $4.5M last year and has 2.25M shares outstanding.Zero's required return on equity is 10% and WACC is 8.2%.If FCFE is expected to grow at 8% forever,the intrinsic value of Zero's shares are ____________.
A)$108.00
B)$1080.00
C)$26.35
D)$14.76
E)none of the above

Question

Quizplus · Accepted Answer

The intrinsic value of Zero's shares is $108.00. This is calculated using the Gordon Growth Model, which is:Intrinsic Value = FCFE / (r - g)where:FCFE = Free Cash Flow to Equityr = Required return on equityg = Growth rate of FCFEIn this case, FCFE = $4.5M, r = 10%, and g = 8%. Plugging these values into the formula, we get:Intrinsic Value = $4.5M / (0.10 - 0.08) = $108.00

Zero Had a FCFE of $4