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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.
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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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I am using your study notes and I know of at least 5 other friends of mine who used it and passed the exam last Dec. Keep up your great work!
Barnes

Barnes

Learning Outcome Statements

describe approaches for calculating the terminal value in a multistage valuation model;

CFA® 2026 Level II Curriculum, Volume 4, Module 22.