# 1. Consider the RI multi-stage model. Using the info below,

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 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.

**Related Book For**

Microeconomics An Intuitive Approach with Calculus

1st edition

Authors: Thomas Nechyba

ISBN: 978-0538453257

**Accounting**Tutors

**Qualified Online Accounting Tutors**.