Perform residual income valuation for nike

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Exercise: Analyst earnings forecasts and residual income valuation (RIV)

As of the end of fiscal year 2010, the consensus analyst earnings per share forecasts for Nike Inc. for the next two years (2011 and 2012) are $4.29 and $4.78, respectively. In its 2010 annual report, Nike reported earnings per share of $3.93, book value per share of $20.15, and dividends per share of $1.06.

Assume that from 2013 to 2015, Nike's earnings per share is expected to grow from its 2012 base at 11% rate. The dividend payout ratio is expected to remain at its 2010 level. The surveyed cost of equity capital for Nike as of 2010 is 10%.

Required

1. Assuming the residual earnings (RE) to grow at 4% annual rate after 2015, perform residual income valuation for Nike as of the fiscal year end of 2010.

2. Assuming the residual earnings to remain at its 2015 level (i.e. no growth in RE after 2015), perform residual income valuation for Nike as of the fiscal year end of 2010.

Reference no: EM131624828

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