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Estimate the value of equity per share

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You are valuing First Bank, a large commercial bank. The bank reported earnings per share of $ 4 last year and paid out dividends of $2.40 per share. The earnings are expected to grow 4% a year in perpetuity, and the firm is expected to maintain its existing payout ratio. The firm's costof equity is 9%.

a. Estimate the value of equity per share.

b. If the stock is trading at $ 42 per share, estimate the implied growth rate (the growth rate that the market is assuming for this stock).

c. In the banking industry what are the pros and cons of using P/E vs P/B as a measure ofrelative attractiveness of a stock

Reference no: EM133072413

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