Boaters World is expected to have per share FCFE in year 1 of $1.65,per share FCFE in year 2 of $1.97,and per share FCFE in year 3 of $2.54.After year 3,per share FCFE is expected to grow at the rate of 8% per year.An appropriate required return for the stock is 11%.The stock should be worth _______ today.
A)$77.53
B)$40.67
C)$82.16
D)$66.00
E)none of the above

Question

Quizplus · Accepted Answer

The stock's value today is calculated by discounting the expected future FCFE to present value. The terminal value at the end of year 3 is calculated using the formula: FCFE in year 4 / (required return - growth rate). The present value of the terminal value and the FCFE for the first three years are summed to find the stock's worth today, which is approximately $77.53.

Boaters World Is Expected to Have Per Share FCFE in Year