Use the following inputs and the finite horizon form of the residual income model to compute the
Question:
Use the following inputs and the finite horizon form of the residual income model to compute the value of Southern Trust Bank (STB) shares as of 31 December 2007:
- ROE will continue at 15 percent for the next five years (and 10 percent thereafter) with all earnings reinvested (no dividends paid).
- Cost of equity equals 10 percent.
- B0 = $10 per share (at year - end 2007).
- Premium over book value at the end of five years will be 20 percent.
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Related Book For
Equity Asset Valuation
ISBN: 978-0470571439
2nd Edition
Authors: Jerald E. Pinto, Elaine Henry, Thomas R. Robinson, John D. Stowe, Abby Cohen
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