Lawrence McKibben is preparing a valuation of QuickChange Auto Centers, Inc. McKibben has decided to use a
Question:
Lawrence McKibben is preparing a valuation of QuickChange Auto Centers, Inc. McKibben has decided to use a three - stage FCFE valuation model and the following estimates. The FCFE per share for the current year is $ 0.75. The FCFE is expected to grow at 10 percent for next year, then at 26 percent annually for the following three years, and then at 6 percent in year 5 and thereafter. QuickChange’s estimated beta is 2.00, and McKibben believes that current market conditions dictate a 4.5 percent risk - free rate of return and a 5.0 percent equity risk premium. Given McKibben’s assumptions and approach, estimate the value of a share of QuickChange.
Step by Step Answer:
The required return for QuickChange found by using the CAPM is r ER i R F i ER M R F 45 2050 145 The ...View the full answer
Equity Asset Valuation
ISBN: 978-0470571439
2nd Edition
Authors: Jerald E. Pinto, Elaine Henry, Thomas R. Robinson, John D. Stowe, Abby Cohen
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