Question

1. You are valuing XYC inc, a growing telecom company. You have to estimate the free cash flows to equity and cost of equity for the company for the next three years below (in millions)

	1	2	3
FCFE	-$25.00	$50.00	$150.00
Cost of Equity	14%	12%	10%

You except the cash flows to grow 3% a year in perpetuity after year 3 and the cost of equity to stay at year 3 levels in perpetuity (after year 3). What is the value of equity in the firm?

a.) 2,331 million

b.) 1,789 million

c.) 1,696 million

d.) 1,553 million

e.) 1,650 million

Answer 1