REAL-WORLD CASE STUDY: Analog Devices, Inc. (Ticker: ADI) is currently trading at $63.50, with book value per share of $16.21. The analyst consensus forecast for EPS as of October-end of 2017 is $3.33, and an October-end 2017 EPS = $3.75. The long-term analysts' consensus EPS annual growth rate is 10.4%. ADI is expected to have a payout ratio of about 70% of earnings. Assume a cost of equity of 9% (using CAPM formula, 2.75% + 1.25*5%) in the calculations below. Fill in the shaded areas of the following spreadsheet. Find the Residual Earnings in 2017 and 2018. Perform Penman's decomposition of value by breaking ADI's share value of $63.50 into components that attributable to Book value per share Short-term residual earnings, with zero-growth Speculation What is the fair value stock price, today, assuming RE growth of 4% after 2018? Reverse-engineer the market implied long-term growth rate in RE from 2018 on. Using the growth rate you found in (e) forecast EPS for years 2019-2021. What is the average annual growth rate in EPS from 2018-2021? Does this growth in EPS conform to the consensus analysts long-term growth rate forecast of 10.40%? Based on the market price of $63.50 is the "market" more or less optimistic than analysts about the longterm EPS growth prospects of ADI? Explain