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CFA Level 1 Exam

3959 Questions

Question No. 1

# A junior financial analyst with Churn Brothers brokerage has been instructed to value shares of Intelligent Semiconductor, a diversified technology company. A senior analyst at Churn Brothers has provided the following information:

The required rate of return on equity is 15% per year

The senior analyst has predicted that shares of Intelligent will sell at a multiple of 25 times predicted free cash flow to equity in four years.

The estimated free cash flows for each of the next four years are:

Year 1: $15,000,000

Year 2: $18,500,000

Year 3: $21,000,000

Year 4: $35,000,000

Intelligent Semiconductor has 1,000,000 shares of common stock outstanding.

Using this information, what is the value per share of Intelligent Semiconductor according to the free cash flow to equity model?

The senior analyst has predicted that shares of Intelligent will sell at a multiple of 25 times predicted free cash flow to equity in four years.

The estimated free cash flows for each of the next four years are:

Year 1: $15,000,000

Year 2: $18,500,000

Year 3: $21,000,000

Year 4: $35,000,000

Intelligent Semiconductor has 1,000,000 shares of common stock outstanding.

Using this information, what is the value per share of Intelligent Semiconductor according to the free cash flow to equity model?

Choose the correct option from the given list.

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