Aaron Mechanic, CFA is responsible for valuing the shares of Duotronics Research Laboratories (DRL). The stock is
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Question:
Aaron Mechanic, CFA is responsible for valuing the shares of Duotronics Research Laboratories
(DRL). The stock is currently trading at $8.75 and he gathers the following financial information about the company:
Expect ROE16% annually for each of the next 4 years
Current BV of equity $435,000,000
Shares outstanding60 million
Required return on equity12%
No dividends paid
All earnings are reinvested
Continuing residual income = 0 after 4 years
Based on the Residual Income Model, what recommendation would Mechanic issue for the stock of DRL?
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