Assignment: Office Equipment industry: Calculate required rate of return on equity using CAPM
Question: At the end of the year 2004 the Office Equipment Industry had free cash flow to equity (FCFE) of $2.50 per share. The following annual growth rates in FCFE are projected
Year Growth Rate
2005 10%
2006 15%
2007 20%
2008 25%
2009 20%
2010 15%
2011 10%
2012 7%
From year 2013 onward growth in FCFE is expected to remain constant at 5% per year. The industry has a beta of 0.90 and the current industry price is $105. Currently the yield on 10-year Treasury notes is 5% and the equity risk premium is 4%
Calculate the present value now (year 2004) of FCFE during the period of increasing growth (that is for years 2005 to 2008)