The forecasts of earnings per share (EPS) and dividends per share (DPS) for Firm Y for year 1, year 2, and year 3 are presented below. The forecasts were made at the end of year 0. The firm had a book value of equity per share (BPS) of $35 in year 0. The firm has an equity beta of 1.25. The long-term bond rate (i.e., risk-free rate of return) is 5%. The market risk premium is 6%. Assume that the residual earnings will grow at a constant rate of 5 percent forever after year

Earnings per share (EPS)year1 $5.00 year2 $5.30 year3 5.60 Dividend per share (DPS)year1 $3.00year2 $3.20 year3 3.40

Book value of equity per share (BPS)$35___________________________________________________________________________

a)Calculate the book value of equity per share and residual earnings per share for each year (year 1, year 2, and year 3).

b)Compute the expected per share value of the equity at the end of year 0 based on the residual earnings valuation model.