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Calculate the residual earnings

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Reference no: EM133036454

Problem: The following forecasts of earnings per share (EPS) and dividend per share (DPS) were made at the end of 2019 for a firm with a book value per share of $9.96 (2019):

2020E 2021E 2022E 2023E 2024E

EPS 2.39 3.45 2.28 2.00 1.71

DPS 1.06 1.12 1.16 1.22 1.24

The firm has an equity cost of capital of 11% per annum.

Requirement 1: Calculate the residual earnings (per share) that are forecast for each year, 2020 to 2024.

Requirement 2: Assuming that the residual earnings in the year 2024 will continue at the same level subsequently, calculate the continuing value of the firm.

Requirement 3: Suggest the intrinsic value of the firm at the end of 2019 based on Residual Income Model using above numbers forecast.

Reference no: EM133036454

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