Question
Exercise 3: Valuation based on the Residual Earnings valuation model The following earnings and dividends forecasts were made at the end of 2021 for a
Exercise 3: Valuation based on the Residual Earnings valuation model
The following earnings and dividends forecasts were made at the end of 2021 for a firm with an $18 book value per common share at that time. The firm has a required equity return of 9%.
| 2022E | 2023E | 2024E | 2025E | 2026E | |
| EPS | 3.79 | 4.86 | 3.93 | 5.03 | 5.49 |
| DPS | 0.75 | 0.97 | 0.78 | 1 | 1.09 |
Forecast book value per share, return on common equity (ROCE), and residual earnings for 2022-2026.
- Based on your forecasts, do you think this firm is worth more or less than book value? Why?
- Assume that residual earnings will grow at a rate equal to the growth in historical GDP (4%) after 2026. What is the value of one share in the company?
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Reforming The Governance Of The Financial Sector
Authors: David Mayes , Geoffrey Wood
1st Edition
0415686849, 978-0415686846
