Question
Q8.8. An analyst produces the following set of forecasts for company F: Year t+1 Y ear t+2 Profit or loss 100 100 Dividend payout ratio
Q8.8. An analyst produces the following set of forecasts for company F: Year t+1 Y ear t+2 Profit or loss 100 100 Dividend payout ratio 50% 50% Year t+3 100 50% At the end of year t, the book value of company Fs equity is 500. Company F has no debt and its cost of equity is 10 percent. The analyst expects that in and after year t+4, company F will earn abnormal profits on the revenue it had in year t+3, but earn zero abnormal profit on incremental revenues beyond that level. Under these assumptions, the analysts estimate of company Fs equity value at the end of year t is :
A. 642.75
B. 885.90
C. 913.22
D. 1012.70
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