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What is the expected return from buying this stock

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a. Cisco Systems traded at $20 per share on December 3, 2001. Analysts are forecasting earnings per share of 0.22 for 2002 and 0.39 for 2003. The firm does not pay dividends. Value Cisco on the assumption that abnormal earnings growth forecasted for 2003 will continue at the same level into the future. Use a cost of equity capital of 10%.

b. A firm with a book value of $27.40 per share at the end of 2012 is expected to earn an EPS of $4.11 in 2013. If you expect subsequent growth in residual earnings to be at a rate of 4 percent per year, what is the expected return from buying this stock at a market price of $54 per share?

Reference no: EM133063233

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