Question: Exhibit 13.7 presents selected data from projected financial statements for Steak n Shake for Year +1 to Year +11. The amounts for Year +11 reflect

Exhibit 13.7 presents selected data from projected financial statements for Steak ’n Shake for Year +1 to Year +11. The amounts for Year +11 reflect a long-term growth assumption of 3 percent.

The cost of equity capital is 9.34 percent.

Required

a. Compute the value of Steak ’n Shake as of January 1, Year +1, using the residual income model.

b. Repeat Part a using the present value of expected free cash flows to the common equity shareholders.

c. Repeat Part a using the dividend discount model.

d. Identify the reasons for any differences in the valuations in Parts a–c.

e. The market value of Steak ’n Shake on January 1, Year +1, is $309.98 million. Based on your valuations in Parts a–c, what is your assessment of the market value of this firm?

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a Net Required Residual Present Value Present Year Income Income a Income Factor Value 1 245 155 90 915 82 2 258 166 92 836 77 3 276 179 97 765 74 4 296 192 104 700 73 5 318 202 116 640 74 6 342 213 1... View full answer

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