An analyst presents you with the following pro forma (in millions of dollars). The pro forma gives her forecasts of earnings and dividends for 2013-2017. She asks you to value the 1,380 million shares outstanding at the end of 2012. Use a required return for equity of 10 percent in your calculations. (This is the same pro forma that was used for a residual earnings valuation in Exercise E5.3.)

a. Forecast growth rates for earnings and cum-dividend earnings for each year, 2014-2017.
b. Forecast abnormal earnings growth (in dollars) for each of the years 2014-2017.
c. Calculate the per-share value of the equity at the end of 2012 from this pro forma. Would you call this a Case 1 or Case 2 abnormal earnings growth valuation?
d. What is the forward P/E ratio for this firm? What is the normal forward P/E?

Transcribed Image Text:

2013 2014 2015 2017 2016 Earnings Dividends 388.0 115.0 570.0 160.0 599.0 349.0 660.45 629.0 367.0 385.40