Question

Free Cash Flow to Equity (FCFE) of $40000 is forecasted for next year and thereafter FCFE...

Free Cash Flow to Equity (FCFE) of $40000 is forecasted for next year and thereafter FCFE is expected to grow at 14% for 3 years. After this period of suoernormal growth l, the FCFE will grow at a constant growth rate of 7% for the forseeable future.

7000 shares are outstanding

Cost of Equity is 10%

The company shares are currently trading at $250 per share on the NYSE

Required:

Calculate the value of the shares today using the FCFE method of valuation. Should you invest in this stock ?
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Answer #1

No, we will not invest in this stock as currently stock is over valued according to our valuation. Market price is greater than intrinsic value per share

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