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An analyst presents you with the following pro forma (in millions of dollars). The pro forma gives her forecasts of earnings and dividends for 2013-2017. She asks you to value the 1,380 million shares outstanding at the end of 2012.

An analyst presents you with the following pro forma (in millions of dollars). The pro forma gives her forecasts of earnings and dividends for 2013-2017. She asks you to value the 1,380 million shares outstanding at the end of 2012. Use a required return for equity of 10 percent in your calculations. (This is the same pro forma that was used for a residual earnings valuation in Exercise E5.3.)

2013 2014 2015 2017 2016 Earnings Dividends 388.0 115.0 570.0 160.0 599.0 349.0 660.45 629.0 367.0 385.40

a. Forecast growth rates for earnings and cum-dividend earnings for each year, 2014-2017.
b. Forecast abnormal earnings growth (in dollars) for each of the years 2014-2017.
c. Calculate the per-share value of the equity at the end of 2012 from this pro forma. Would you call this a Case 1 or Case 2 abnormal earnings growth valuation?
d. What is the forward P/E ratio for this firm? What is the normal forward P/E?

Transcribed Image Text:

2013 2014 2015 2017 2016 Earnings Dividends 388.0 115.0 570.0 160.0 599.0 349.0 660.45 629.0 367.0 385.40

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2013E 2014E 2015E 2016 2017 Earnings 388 0 570 0 599 0 629 0 660 45 Dividends 115 0 160 0 349 0 367 …View the full answer


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Financial Statement Analysis and Security Valuation

Financial Statement Analysis and Security Valuation

ISBN: 978-0078025310

5th edition

Authors: Stephen Penman

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Posted Date: August 25, 2017 02:10:45
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