A firm is forecasted to earn a 17.4% return on common equity (ROCE) for the 2020-2021 period with forecasted $392 million comprehensive income, which would bring the closing book value of the common shareholders’ equity to $2,450 million as at year-end 30 June 2021. The company’s equity on the 30th of June 2020 was valued in the market at a price-to-book ratio of 1.7 (i.e. this is the market value of common equity over book value of common equity). The market’s expected return on equity for 2020-2021 is 11%. The company is projected to have zero net dividend during 2020-2021.

Using the above information, calculate the expected market premium that the firm is forecasted to be worth as at 30 June 2021. The expected market premium is the difference between the expected market value and the expected book value of equity

Answer rating: 100% (QA)

The expected market premium for the firm is 4138 million ... View the full answer