- CFA Exams
- CFA Level I Exam
- Topic 5. Equity Valuation
- Learning Module 24. Free Cash Flow Valuation
- Subject 5. Free cash flow model variations

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**CFA Practice Question**

Mark is doing a valuation of NCI Industries using the following information:

- Beta of the stock: 1.2.
- FCFE per share over the next two years: $8, $10.
- Terminal value per share at the end of the second year: $60.
- Risk-free rate: 4%.
- Market rate of return: 15%.

Based on Mark's study and predictions, the value of NCI Industries' stocks should be ______ per share.

A. $56.78

B. $57.04

C. $57.79

**Explanation:**Cost of equity= 4% + 1.2 x (15% - 4%) = 17.2%.

The value per share is then $8/1.172 + ($10 + $60)/1.172

^{2}= $57.79.

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