LS1008: Bajaj Limited expects to see a growth of 20% every year in free cash flow to equity (FCFE) over the next 3 years. The growth is likely to decline to 10% over the subsequent two years

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Question: Bajaj Limited expects to see a growth of 20% every year in free cash flow to equity (FCFE) over the next 3 years. The growth is likely to decline to 10% over the subsequent two years.
After that, it is expected to be at a stable level of 6% per year. The FCFE in the current year is Rs 20 per equity share.

Compute the fair value per share based on the FCFE approach. Assume 20% cost of equity.


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