A Residual Earnings Valuation (Easy)An analyst presents you with the following pro forma (in millions of dollars) that gives herforecast of earnings and dividends for 2013-2017. She asks you to value the 1,380 millionshares outstanding at the end of 2012, when common shareholders' equity stood at $4,310million. Use a required return for equity of 10 percent in your calculations.EarningsDividends2013E388.0115.02014E570.0160.02015E599.0349.02016E629.0367.02017E660.4385.4Chapter 5 Accrual Accounting and Valuation: Pricing Book Values 169a. Forecast book value, return on common equity (ROCE), and residual earnings for eachof the years 2013-2017.b. Forecast growth rates for book value and residual earnings for each of the years2014-2017.c. Calculate the per-share value of the equity from this pro forma. Would you call this aCase 1, 2, or 3 valuation?d. What is the premium over book value given by your calculation? What is the P/B ratio?

We have to first calculate the equity charge which is the cost of capital ( required rate of return…

Answered: A Residual Earnings Valuation (Easy) An…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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