The growth in per share FCFE of SYNK, Inc. is expected to be 8% per year for the next two years, followed by a growth rate of 4% per year for three years. After this five-year period, the growth in per share FCFE is expected to be 3% per year, indefinitely. The required rate of return on SYNC, Inc. is 11%. Last year's per share FCFE was $2.75. What should the stock sell for today?
A) $28.99
B) $35.21
C) $54.67
D) $56.37
E) $39.71

Question

Quizplus · Accepted Answer

Calculations are shown below. P₅ = 3.7164/(.11 .03) = $46.4544; PV of P₅ = $46.4544/(1.11)⁵ = $27.5684; P₀ = $12.1449 + $27.57 = $39.71.

The Growth in Per Share FCFE of SYNK, Inc