1. Consider the RI multi-stage model. Using the info below, solve the model for the case where w = 1. Consider the information given below. existing ROE = 20%; this will continue for the next 6 years. rS = 12% B0 = $18 payout ratio = 30%

Using the residual income model, calculate the stock share value for each of the following possibilities.

(a) From the end of year 6 to infinity, the ROE = 12%. (b) From the end of year 6 to infinity, the continuing residual income is a perpetuity. (c) From the end of year 6 to infinity, continuing residual income is determined by a persistence factor = 0.35 (d) At the end of year 6 the P/B ratio is projected to be 1.6.