Based on the data above, please estimate:

RE for Years 1-3;

Continuing RE at Yr3 using three differential g rates (RE growth, GDP growth, industry Growth);

Please consider a rounding of two decimal points (e.g. 6.7912 is 6.79 or 15.5678% is 15.57%)

Answer the following question in the space below:

Q5. 1. Estimate the growth rate (g) implied in the estimation of continuing value so that current price (P) is justified based on the Residual Earnings model (3 points)

Aswer:

Q5.2. Assess whether you would issue a Buy/Sell/Hold - at the current Price - if we assumed no RE growth in estimating continuing value at the end of Y3 (1 point)

Aswer:

Q5.3. What is the 'continuing' or 'speculative' value estimated based on the current Price and the RE model above? (2 points)

data:

Data MARKET VALUE 45000 BOOK VALUE 20000 P/B 2.25 EARNINGS 3000 P/E 15.00 DIVIDENDS 750 # Shares Out 2000 Forecast EPS grows after Yr2 7.0% r 8% GDP growth 3.0% Industry Growth 4.0%