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Estimate the value of equity per share

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Question - ABC Ltd reported a significant loss of Ksh. 2.5 per share in 2019 but reported positive earnings per share (EPS) of Ksh. 1.5 in the following year, as sales improved and profit margins increased. The improving economy is expected to quadruple earnings in 2021, after which earnings growth is expected to stabilize at 3 % in the long term. ABC Ltd also reported capital spending per share of Ksh. 5.50 and depreciation per share of Ksh. 4.50 in 2020 and both items are expected to grow at 3 % a year in the long term. Assume a risk premium of 6 percent. The working capital for the firm amounted to Ksh. 2.50 per share in 2020 and was expected to grow at 3% a year in the long term. The beta for the stock is 1.2, but it is expected to stabilize at 1.10 after 2021. The firm expects to maintain a debt ratio of 40%. The Treasury bond rate stands at 7%. Estimate the value of Equity per share.

Reference no: EM133039475

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