Question: Exercise 3: Valuation based on the Residual Earnings valuation model The following earnings and dividends forecasts were made at the end of 2022 for a

Exercise 3: Valuation based on the Residual Earnings valuation model The following earnings and dividends forecasts were made at the end of 2022 for a firm with an $18 book value per common share at that time. The firm has a required equity return of 9%. 2023E 2024E 2025E 2026E 2027E EPS 3.79 4.86 3.93 5.03 5.49 DPS 0.75 0.97 0.78 1 1.09 Forecast book value per share, return on common equity (ROCE), and residual earnings for 2023-2027. a. Based on your forecasts, do you think this firm is worth more or less than book value? Why? b. Assume that residual earnings will grow at a rate equal to the growth in historical GDP (4%) after 2027. What is the value of one share in the company?

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