Valuation From Forecasting Abnormal Earnings Growth (Easy)

An analyst presents you with the following pro forma (in millions of dollars). The pro forma gives her forecasts of earnings and dividends for 2010–2014. She asks you to value the 1,380 million shares outstanding at the end of 2009. 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.)

a. Forecast growth rates for earnings and cum-dividend earnings for each year, 2011–2014.

b. Forecast abnormal earnings growth for each of the years 2011–2014.

c. Calculate the per-share value of the equity at the end of 2009 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?

2010E 2011E 2012E 2013E 2014E Earnings 388.0 570.0 599.0 629.0 660.45 Dividends 115.0 160.0 349.0 367.0 385.40