E5.10. Residual Earnings Valuation: Black Hills Corp (Easy) Black Hills Corporation is a diversified energy corporation and a public utility bolding com- pany. The following gives the firm's earnings per share and dividends per share for the years 2000-2004. 1999 2000 2001 2002 2003 2004 EPS 2.39 3.45 2.28 2.00 1,79 DPS 1.06 1.12 1.16 1.22 1.24 BPS 9.96 Suppose these numbers were given to you at the end of 1999, as forecasts, when the book value per share was $9.96, as indicated. Use a required return of 11 percent for calculations below.

a. Calculate residual eamings and return of common equity (ROCE) for each year, 2000-2004.

b. Value the firm at the end of 1999 under the assumption that the ROCE in 2004 will continue at the same level subsequently. Would you call this a Case 1, Case 2, or Case 3 valuation?

c. Based on your analysis, give a target price at the end of 2004.