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The following are earnings and dividend forecasts made at the end of 2009 for a rm with $20.00 book value per common share at that
The following are earnings and dividend forecasts made at the end of 2009 for a rm with $20.00 book value per common share at that time. The rm has a required equity return of 10 percent per year
| 2010 | 2011 | 2012 | |
| EPS | 3 | 3.6 | 4.1 |
| DPS | 0.25 | 0.25 | 0.3 |
a. Forecast return of common equity (ROCE) and residual earnings for each year, 20102012.
b. Based on your forecasts, do you think this rm is worth more or less than book value? Why?
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