Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Valuation based on the Residual Earnings valuation model The following earnings and dividends forecasts were made at the end of 20 2 2 for a
Valuation based on the Residual Earnings valuation model
The following earnings and dividends forecasts were made at the end of 2022 for a firm with an $18 book value per common share at that time. The firm has a required equity return of 9%.
2023E
2024E
2025E
2026E
2027E
EPS
3.79
4.86
3.93
5.03
5.49
DPS
0.75
0.97
0.78
1
1.09
Forecast book value per share, return on common equity (ROCE), and residual earnings for 2023-2027.
a. Based on your forecasts, do you think this firm is worth more or less than book value? Why? b. Assume that residual earnings will grow at a rate equal to the growth in historical GDP (4%) after 2027. What is the value of one share in the company? 
Exercise 3: Valuation based on the Residual Earnings valuation model The following earnings and dividends forecasts were made at the end of 2022 for a firm with an $18 book value per common share at that time. The firm has a required equity return of 9%. Forecast book value per share, return on common equity (ROCE), and residual earnings for 2023-2027. a. Based on your forecasts, do you think this firm is worth more or less than book value? Why? b. Assume that residual earnings will grow at a rate equal to the growth in historical GDP (4\%) after 2027. What is the value of one share in the company
Valuation based on the Residual Earnings valuation model
The following earnings and dividends forecasts were made at the end of 2022 for a firm with an $18 book value per common share at that time. The firm has a required equity return of 9%.
| 2023E | 2024E | 2025E | 2026E | 2027E |
EPS | 3.79 | 4.86 | 3.93 | 5.03 | 5.49 |
DPS | 0.75 | 0.97 | 0.78 | 1 | 1.09 |
Forecast book value per share, return on common equity (ROCE), and residual earnings for 2023-2027.
a. Based on your forecasts, do you think this firm is worth more or less than book value? Why?
b. Assume that residual earnings will grow at a rate equal to the growth in historical GDP (4%) after 2027. What is the value of one share in the company?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started