Paraflux Inc., a pharmaceutical company, reported earnings per share of€0.9, return on assets of 13%, a debt-to-equity ratio of 40%, a pre-taxinterest rate of 8% and a retention ratio of 85% for the previous year.Moreover, the company had registered growth in earnings per share of 50%in the past five years. Assuming that the tax rate is 25% and that thesefigures will be sustained in the future, the expected growth rate in free cashflow to equity (FCFE) will be:a. 16.53%b. 11.22%c. 10.36%d. None of the proposed answers is correcte. 13.43%

Free cash flow (FCF) is a financial metric used to measure the amount of cash that a business…

Answered: in the past five years. Assuming that…

in the past five years. Assuming that the tax rate is 25% and that these figures will be sustained in the future, the expected growth rate in free cash flow to equity (FCFE) will be:

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Question

Paraflux Inc., a pharmaceutical company, reported earnings per share of
€0.9, return on assets of 13%, a debt-to-equity ratio of 40%, a pre-tax
interest rate of 8% and a retention ratio of 85% for the previous year.
Moreover, the company had registered growth in earnings per share of 50%
in the past five years. Assuming that the tax rate is 25% and that these
figures will be sustained in the future, the expected growth rate in free cash
flow to equity (FCFE) will be:
a. 16.53%
b. 11.22%
c. 10.36%
d. None of the proposed answers is correct
e. 13.43%

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