Forecasting FCFF and FCFE
Cera Systems generates stable free cash flow of USD 12.3 in 20X1. In estimating the 20X4 free cash flow value, the average annual growth rate for Cera is 8.25%. What amount is closest to Cera's free cash flow in 20X5?
No.
20X1 was the last year of measurement, so there aren't five years since that year.
Not quite.
The calculation involves the year 20X5.
Yes!
Cera's 20X5 estimated free cash flow is :
$$\displaystyle 12.3 \times (1 +0.0825)^4 \approx 16.89$$
USD 13.31
USD 16.89
USD 18.28
