When a stock is going through a period of nonconstant growth for T periods, followed by constant growth forever, the residual income model can be modified as follows: Po = where PT = BT + EPS + Bt-1- Bt (1 + k)t Value per share + EPST (1+g) - BT x k k-g PT (1+k)T Al's Infrared Sandwich Company had a book value of $12.95 at the beginning of the year, and the earnings per share for the past year was $3.41. Molly Miller, a research analyst at Miller, Moore & Associates, estimates that the book value and earnings per share will grow at 12.5 and 11 percent per year for the next four years, respectively. After four years, the growth rate is expected to be 6 percent. Molly believes the required return for the company is 8.2 percent. What is the value per share for Al's Infrared Sandwich Company? Note: Do not round intermediate calculations. Round your answer to 2 decimal places.
When a stock is going through a period of nonconstant growth for T periods, followed by constant growth forever, the residual income model can be modified as follows: Po = where PT = BT + EPS + Bt-1- Bt (1 + k)t Value per share + EPST (1+g) - BT x k k-g PT (1+k)T Al's Infrared Sandwich Company had a book value of $12.95 at the beginning of the year, and the earnings per share for the past year was $3.41. Molly Miller, a research analyst at Miller, Moore & Associates, estimates that the book value and earnings per share will grow at 12.5 and 11 percent per year for the next four years, respectively. After four years, the growth rate is expected to be 6 percent. Molly believes the required return for the company is 8.2 percent. What is the value per share for Al's Infrared Sandwich Company? Note: Do not round intermediate calculations. Round your answer to 2 decimal places.
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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Vijay shiyal
Transcribed Image Text:When a stock is going through a period of nonconstant growth for T periods, followed by constant growth forever, the residual income
model can be modified as follows:
Σf=1
Po
where
PT = BT +
EPS + B-1
(1 + k)t
Value per share
Bt
+
EPST (1+g) - BT x k
k-g
PT
(1 + k)T
Al's Infrared Sandwich Company had a book value of $12.95 at the beginning of the year, and the earnings per share for the past year
was $3.41. Molly Miller, a research analyst at Miller, Moore & Associates, estimates that the book value and earnings per share will
grow at 12.5 and 11 percent per year for the next four years, respectively. After four years, the growth rate is expected to be 6 percent.
Molly believes the required return for the company is 8.2 percent. What is the value per share for Al's Infrared Sandwich Company?
Note: Do not round intermediate calculations. Round your answer to 2 decimal places.
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