Answering step (c)

The growth rate in residual earnings is 5% after 2012. Asuuming this growth rate will continue into the future, the valuation is a Case 3 valuation with the continuing value calculated at the end of 2012

The total present value of RE to 2012 = 128.1

The present value of CV= 1573.3

Value of the equity = 6011.4

Per share value = 4.36

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I wonder why we calculate the present value of Residual Earning to only 2012 period ?! Why we didn't sum the whole presents residual earnings to 2014 ?

E5.3. A Residual Earnings Valuation (Easy) An analyst presents you with the following pro forma (io millions of dollars) that gives her forecast of earnings and dividends for 2010-2014. She asks you to value the 1,380 million shares outstanding at the end of 2009, when common shareholders' equity stood at $4,310 million. Use a required return for equity of 10 percent in your calculations. 2010E 388.0 115.0 2012E Earnings Dividends 2011E 570.0 160.0 599.0 349.0 2013E 629.0 367.0 2014E 660.4 385.4 a. Forecast book value, return on common equity (ROCE), and residual earnings for each of the years 2010-2014. years 2011-2014 Case 1, 2, or 3 valuation? b. Forecast growth rates for book value and growth in residual earnings for each of the c. Calculate the per-share value of the equity from this pro forma. Would you cal his a r book value given by your calculation? What is the PB ratio