Homework Question

Question 3 (8 points) Consider the following pershare numbers from the accounting reports of a firm _| Cost of Capital 9% Estimate 2016 2017 2018 2019 2020 Bk value (end Of 200 203 211.27 215.29 221 Year) Dividends (end of year) 20 15 10 15 Income 12 14 16.5 18.5 a. Do these numbers follow clean surplus relations? Verify. (1 points) Yes, they follow clean surplus relations. b. What would be the estimate of other comprehensive income in years 2017, 2018 and 201 9? c. What is the Residual Income of the rm on years 2017, 2018, 2019? d. Based on the residual income what do you think will be the market value of the share at the end of 2020? Why? e. Some analysts are impressed with the earnings growth while some analysts have commented that the rm is approaching at a steady state of operation, because it is just covering the cost of capital. How would you assess this claim? Support your assessment with calculations