At the beginning of its fiscal year 2020, an analyst made the following forecast for ABC, Inc. (in millions of dollars):

	2019	2020	2021	2022	2023	2024
Earnings		320	350	245	321	220
Dividends		150	120	98	105	86
Book value	890

Suppose these numbers were given to you at the end of 2019, as forecasts, when the book value was 890 million, as indicated and market price of the stock was $10.5 per share. Use a required return of 10 percent for calculations below. Show your working process.

1. Calculate residual earnings and return of common equity (ROCE) for each year, 20202024.

[5 marks]

2. Value the firm at the end of 2019 under the assumption that the RE in 2024 will continue at the same level subsequently.

[2 marks]

3. Based on you analysis, if the number of shares outstanding at the end of 2019 was 220 million, what should be the share price of ABC?

[1 mark]

4. Based on your estimate, should investors buy the share of this company?

[1 mark]