An analyst presents you with the following pro forma (in millions of dollars) th

Question

An analyst presents you with the following pro forma (in millions of dollars) that gives her forecast of earnings and dividends for 2016-2020. She asks you to value the 1,500 million shares outstanding at the end of 2015, when shareholder common (book) equity stood at $5,845 million. Use a required return on equity of 10% in you calculations. a. Forecast the book value, return on equity, and residual earnings for each of the years 2016-2020. b. Forecast the growth rates for book value and residual earnings for each of the years 2017-2020. c. What is the per-share intrinsic value at the end of 2015 based on the residual income valuation model? What assumptions did you make to find the intrinsic value? d. What is the implied price-to-book ratio based upon your calculations in part (c)?

Explanation / Answer

(a)

(b)

Answer to (c) and (d) are not done.

2016 2017 2018 2019 2020 a Equity Book Value (millions) 1500 1500 1500 1500 1500 b Required rate of return 10% 10% 10% 10% 10% c Equity charge 150 150 150 150 150 d Earnings 315 419 444 471 499 e Residual Income (d-c) 165 269 294 321 349 g Book Value of equity in the beginning 5845 5845 5845 5845 5845 h ROE (d/g) 5.39% 7.17% 7.60% 8.06% 8.54% i Book value at the end (g+d) 6160 6264 6289 6316 6344

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.