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 · Σ = where: 21=1 PT = BT + EPS,+B-1-B₁ (1+k)' + EPST (1+8)-Brxk k-g Value per share Pr (1+k) Al's Infrared Sandwich Company had a book value of $20.50 at the beginning of the year, and the earnings per share for the past year was $6.41. Molly Miller, a research analyst at Miller, Moore & Associates, estimates that the book value and earnings per share will grow at 17.00 and 15.50 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 10.00 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
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Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
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Chapter1: Investments: Background And Issues
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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 = Σ/=1
where:
PT = BT +
EPS,+B-1-B,
(1+k)'
+
EPST (1+g)-BTxk
k-g
Value per share
Pr
(1+k)
Al's Infrared Sandwich Company had a book value of $20.50 at the beginning of the year, and the earnings per share for the past year
was $6.41. Molly Miller, a research analyst at Miller, Moore & Associates, estimates that the book value and earnings per share will
grow at 17.00 and 15.50 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 10.00 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.
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: Po = Σ/=1 where: PT = BT + EPS,+B-1-B, (1+k)' + EPST (1+g)-BTxk k-g Value per share Pr (1+k) Al's Infrared Sandwich Company had a book value of $20.50 at the beginning of the year, and the earnings per share for the past year was $6.41. Molly Miller, a research analyst at Miller, Moore & Associates, estimates that the book value and earnings per share will grow at 17.00 and 15.50 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 10.00 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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