Assume a company as telstra

Using all the relevant information for your company, calculate your companys required return, book value per share, return on common equity, residual earnings per share and price-to-book ratio, as at the last financial year end. Show all relevant data used in the calculations and the relevant page numbers of the annual report from where you obtained your data.

Estimate the intrinsic value of your companys equity using the residual earnings model with an estimated growth rate, which needs to be justified. On the basis of your calculation, make an investment recommendation (either buy, sell, or hold) and justify your recommendation.

3. Implied growth rates (reverse engineering with the residual earnings model)

For this section, use the book value per share calculated in section 3. You will also have to research some relevant business news articles on your company.

Calculate your companys residual earnings for the next two years consistent with the forecasts. Estimate the implied long-term growth rate in residual earnings, and estimate and plot the future earnings growth path, similar to Figure 7.5 in the textbook. You should include at least five years of earnings and earnings growth rates after the final analyst forecast. You will most likely have to make some assumptions regarding future dividend payout ratios. These assumptions should be reasonable and adequately described in this section.

Combining the results of your analysis with any source of relevant company information in the business news media, discuss whether you think the implied growth rates you estimated seem too high or too low, and then make a buy, sell, or hold recommendation on the companys shares. Hint: Examples of sources you might try are The Australian Financial Review, Yahoo Finance, Reuters or Bloomberg.