Consider the following pro forma for International Business Machines Corp. (IBM) based on analysts' forecasts in early 2011.

The book value of IBM's common equity at the end of 2010 was $23.0 billion, or $18.77 per share. Use a required return for equity of 10 percent in calculations.
a. Forecast residual earnings for each of the years 2011- 2015.
b. Forecast abnormal earnings growth (in dollars) for each of the years 2012- 2015.
c. Show that abnormal earnings growth is equal to the change in residual earnings for every year.

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2011 Next Three Years 2012 Earnings per share Dividends per share Growth at 11% Growth at 11% 13.22 3.00 14.61 3.30