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Posted on Jul 22, 2024

Apply the Residual Earnings Model (Ch-5) to the data below to estimate the Stock Value. Discount rate is >> 11.50% 1) 12Pts Assume Residual Earnings

Apply the Residual Earnings Model (Ch-5) to the data below to estimate the Stock Value. Discount rate is >> 11.50% 1) 12Pts Assume Residual Earnings for Yeart-4 and later remains constant S amount at the t=3 level you calculated ('90) 2) 6pts What's new Stock S estimate il now starting at Yrt 4, Resid. Earns remains at repeat constant annual > $ 2.50 3) 6pts What's new Stock $ estimate if now starting at Yrt-4. Resid. Earns grows from t 3 Slevel at constant 3.75% Current Forecast Forecast Forecast Forecast Exam-2 due Oct-31 Actual t=1 t=2 t=3 EARINGS PER SHR S 6.25$ 7.20$ 8.00 $ 9.00 DIVIDEND $ 2.00 $ 2.15 S 1.85 S 2.00 BOOK VALUE $ 57.00 $ 62.05S 68.20 S 75.20 RET ON EQUITY Calc%???> ? ? ? 0.1150 $ Answ N2 Part 3 Annual growth after t=3 => 3.75% Stk Value incl growing CV> $ Answ #3 10/22/2021 24pts FREE CASH FLOW VALUATION Exm-2 NAME > Oct31 Use the forecast below to find this stock's value. Expected constant growth for Free Cash Flow is-> DEBT-> $ 4.000 WACC Assumes tax rate is -->> 0.23 3.70% 8.75% B c D E S Million Change in EBIT EBIT (1-TxR) Depreciation Work Capital F Capital Spending B Free Cash Flow > Firm Pres. Value FCF Firm FORECAST YEAR Pres. Value Factors 1 S900 S693 S80 S40 S220 2 $970 $747 590 $50 5235 3 5809 S100 560 $250 $1,050 S1.125 4 5866 SITO 570 5265 Answ #1 TERMINAL VALUE PROJECTION 5 Assume all future Free Cash Flow to Firm grow at contant 0.037 Terminal value at START of Year 5 = FCF END Yr 4 (WACC-':') where 'x' is projected constant future growth rate of FCF.assumed in this probat > 0.037 PVE Terminal Pres. Value Answ #2 SUM OF PVS OF PROJECTED FCF TO Testce = millions s 4.000 $ 4,000.00 Assume this firm's debt is now Smillions >> SUBTRACT DEBT PAY-OFF SOLUTION OF VALUE OF TestCo's EQUITY - based on residual CF to shareholders millions 60 $ 40.00 ? ? ? RET ON EQUITY ??? > ? ? Atal answ At=2 answ Ata3 answ Assume # of shares issued is unchanged and Other comprehensive income' = $0 Apply the Residual Earnings Model (Ch-5) to the data below to estimate the Stock Value. Discount rate is >> 11.50% 1) 12Pts Assume Residual Earnings for Yeart-4 and later remains constant S amount at the t=3 level you calculated ('90) 2) 6pts What's new Stock S estimate il now starting at Yrt 4, Resid. Earns remains at repeat constant annual > $ 2.50 3) 6pts What's new Stock $ estimate if now starting at Yrt-4. Resid. Earns grows from t 3 Slevel at constant 3.75% Current Forecast Forecast Forecast Forecast Exam-2 due Oct-31 Actual t=1 t=2 t=3 EARINGS PER SHR S 6.25$ 7.20$ 8.00 $ 9.00 DIVIDEND $ 2.00 $ 2.15 S 1.85 S 2.00 BOOK VALUE $ 57.00 $ 62.05S 68.20 S 75.20 RET ON EQUITY Calc%???> ? ? ? 0.1150 $ Answ N2 Part 3 Annual growth after t=3 => 3.75% Stk Value incl growing CV> $ Answ #3 10/22/2021 24pts FREE CASH FLOW VALUATION Exm-2 NAME > Oct31 Use the forecast below to find this stock's value. Expected constant growth for Free Cash Flow is-> DEBT-> $ 4.000 WACC Assumes tax rate is -->> 0.23 3.70% 8.75% B c D E S Million Change in EBIT EBIT (1-TxR) Depreciation Work Capital F Capital Spending B Free Cash Flow > Firm Pres. Value FCF Firm FORECAST YEAR Pres. Value Factors 1 S900 S693 S80 S40 S220 2 $970 $747 590 $50 5235 3 5809 S100 560 $250 $1,050 S1.125 4 5866 SITO 570 5265 Answ #1 TERMINAL VALUE PROJECTION 5 Assume all future Free Cash Flow to Firm grow at contant 0.037 Terminal value at START of Year 5 = FCF END Yr 4 (WACC-':') where 'x' is projected constant future growth rate of FCF.assumed in this probat > 0.037 PVE Terminal Pres. Value Answ #2 SUM OF PVS OF PROJECTED FCF TO Testce = millions s 4.000 $ 4,000.00 Assume this firm's debt is now Smillions >> SUBTRACT DEBT PAY-OFF SOLUTION OF VALUE OF TestCo's EQUITY - based on residual CF to shareholders millions 60 $ 40.00 ? ? ? RET ON EQUITY ??? > ? ? Atal answ At=2 answ Ata3 answ Assume # of shares issued is unchanged and Other comprehensive income' = $0