15. Use the following inputs and the finite horizon form on the residual income model to compute the value of Southern Trust Bank (STB) shares as of 31 December 2007:

ROE will continue at 15 percent for the next five years (and 10 percent thereafter) with all earnings reinvested (no dividends paid).

Cost of equity equals 10 percent

B_o = $10 per share (at year-end 2007)

Premium over book value at the end of five years will be 20 percent