The current risk-free rate is 2.5%. The market risk premium is 5%. If CC\'s mark

Question

The current risk-free rate is 2.5%. The market risk premium is 5%. If CC's market beta is 1.5,

How much is the continuing value of CC at year+5 (not its present value) based on a steady-state growth in comprehensive net income of 2%.?

Actual Projected 2015 Year +1 Year +2 Year +3 Year +4 Year +5 Comprehensive Income $13,696 $27,990 $30,048 $32,252 $34,612 $37,138 Common Shareholders’ Equity: Paid-In Capital $8,626 $9,488 $10,438 $11,482 $12,630 $13,892 Retained Earnings 127,320 137,384 154,036 161,914 187,910 194,048 Accumulated Other Comprehensive Income               (5,376)           (5,376)           (5,376)           (5,376)           (5,376)           (5,376) Total Common Equity $130,570 $141,496 $159,098 $168,020 $195,164 $202,564

Explanation / Answer

Ans:

The containing value of CC at year +5:

Actual

2% growth

$33,829

$     34,506.00

$206,615

$ 2,10,458.00

$278,326

$ 2,83,893.00

$422,869

$ 4,31,326.00

Actual

2% growth

$33,829

$     34,506.00

$206,615

$ 2,10,458.00

$278,326

$ 2,83,893.00

$422,869

$ 4,31,326.00

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