Question
The following earnings and dividends forecasts made at the end of 2016 for a firm with $16 book value per common share at that time.
The following earnings and dividends forecasts made at the end of 2016 for a firm with $16 book value per common share at that time. The firm has a required equity return of 9%.
| 2017 | 2018 | 2019 | 2020 | 2021 | |
| EPS | 3.26 | 4.18 | 3.38 | 4.32 | 4.71 |
| DPS | 0.78 | 0.97 | 1.08 | 1.17 | 1.32 |
a,Forecast book value per share, return on common equity (ROCE), and residual earnings for each year, 2017-2021.
b. Based on your forecasts, do you think this firm is worth more or less than book value? Why?
c. Assume that residual earnings will grow at a rate equal to growth in historical GDP
(4%), after 2021. What is the value of one share in the company?
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Personal Finance In Your 20s And 30s For Dummies
Authors: Eric Tyson
2nd Edition
9781119431411, 978-1119431411
