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Use the following inputs and the finite horizon from of the residual income model to compute the value of Southern Trust Bank (STB) shares as

Use the following inputs and the finite horizon from of the residual income model to compute the value of Southern Trust Bank (STB) shares as of 31 December 2007:

  1. ROE will continue at 15% for the next five years and 10% thereafter with all earnings reinvested (no dividends paid)
  2. Cost of equity is 10%
  3. Beginning period book value at year-end 2007 is $10

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