Smart Draw Company is expected to have per share FCFE in year 1 of $1.20, per share FCFE in year 2 of $1.50, and per share FCFE in year 3 of $2.00. After year 3, per share FCFE is expected to grow at the rate of 10% per year. An appropriate required return for the stock is 14%. The stock should be worth _______ today.
A) $33.00
B) $40.68
C) $55.00
D) $66.00
E) $12.16

Question

Quizplus · Accepted Answer

Calculations are shown in the table below. P₃ = 2 (1.10)/(.14 .10) = $55.00; PV of P₃ = $55/(1.14)³ = $37.12; P₀ = $3.56 + $37.12 = $40.68.

Smart Draw Company Is Expected to Have Per Share FCFE