Question: The Home Appliance Industry had free cash flow to equity (FCFE) of $87 for the year ending December 31, 2007. The industry anticipates a growth rate of 8% for the next three years due to favorable economic conditions. However the growth rate is expected to decline to 4% after three years and remain at that level indefinetly. The required rate of return is 12% for the industry.
Q1. Calculate the intrinsic value of the Home Appliance Industry at the end of the 8% growth period three years from now.
Q2. Calculate the intrinsic value of the Home Appliance Industry today.