ACCA Strategic Professional · Advanced Financial Management · Valuation and the use of free cash flows
Delta plc has FCFE of $40m this year (just paid), expected to grow at 5% a year indefinitely. Its cost of equity is 12%. It has 100m shares. What is the value per share using FCFE?
Value per share is $6.00, found by growing FCFE to $42m, discounting at cost of equity less growth of 7% to get $600m, then dividing by 100m shares. None of the listed figures matches this.
- A$0.60Correct
- B$0.57
- C$0.33
- D$0.48
Explanation
Next year's FCFE = 40 x 1.05 = $42m. Equity value = 42 / (0.12 - 0.05) = $600m. Per share = 600/100 = $6.00? Recheck: 600m/100m = $6.00, so none match; correct value is $6.00.
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