An analyst estimates that the next year's free cash flow to equity (FCFE) of Coca...
90.2K
Verified Solution
Link Copied!
Question
Finance
An analyst estimates that the next year's free cash flow to equity (FCFE) of Coca Cola will be $10 and that FCFE will grow from next year at a constant rate of 4% (g). In addition, he estimates a required rate of return on equity (r) of 10%. If the analyst allows r and g to vary by 25 basis points (0.25%), which of the following combinations of r and g will give the highest value estimate for Coca Cola's shares?
A.When r = 10.25% and g = 3.75%
B.When r = 9.75% and g = 4.50%
C.When r = 10% and g = 4%
D.When r = 9.75% and g = 4.25%
Could you please explain why the answer is D which is from the tutorial? Thank you in advance
Answer & Explanation
Solved by verified expert
Get Answers to Unlimited Questions
Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!
Membership Benefits:
Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
