Estimate the FCFE each year for the next three years. b) At the end of year 3, you expect the bank to be in stable growth, growing 3% a year, while maintaining the return on equity it generated in year 3. If the cost of equity is 8%, estimate the value of equity at the end of year 3 c) What is the intrinsic value of the equity per share?

Essentials Of Investments
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ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Question 3 You have been asked to value Best Bank, a publicly traded bank that generated $100 million in net income in the most recent year on a regulatory capital base of $1billion (you can assume that this is also the book value of equity) with one billion shares outstanding. Over the next three years, you expect net income to grow 10% a year and regulatory capital (and book equity) to increase 5% a year.
a) Estimate the FCFE each year for the next three years.
b) At the end of year 3, you expect the bank to be in stable growth, growing 3% a year, while maintaining the return on equity it generated in year 3. If the cost of equity is 8%, estimate the value of equity at the end of year 3
c) What is the intrinsic value of the equity per share?
 
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