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Basic Question 1 of 3
- FCFE = $1.65 per share.
- Target debt ratio = 30%.
- Expected return on the market =15%.
- Risk-free rate is 5%.
- Beta = 1.1
- Growth rate of FCFE = 6%.
Calculate the equity value.
User Contributed Comments 4
| User | Comment |
|---|---|
| katybo | risk premium? |
| duoluo | r = RFR + beta*(Return on Market - RFR) = 16% |
| aravinda | Here is how I remember Market premium = E(Rm) Market Risk premium = { E(Rm) - RFR } Equity Risk Premium =same as above= {E(Rm) - RFR} Risk Premium = Beta { E(Rm) - RFR } |
| UcheSam | Expected return on the market is no the same as risk premium. |
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Learning Outcome Statements
explain the single-stage (stable-growth), two-stage, and three-stage FCFF and FCFE models and select and justify the selection of the appropriate model given a company's characteristics;
estimate a company's value using the appropriate free cash flow model(s);
explain the use of sensitivity analysis in FCFF and FCFE valuations;
evaluate whether a stock is overvalued, fairly valued, or undervalued based on a free cash flow valuation model.
CFA® 2025 Level II Curriculum, Volume 4, Module 22.