The following are earnings and dividend forecasts made at the end of 2012 for a firm with

Question:

The following are earnings and dividend forecasts made at the end of 2012 for a firm with $20.00 book value per common share at that time. The firm has a required equity return of 10 percent per year.

2013 2014 2015 EPS DPS 3.60 0.25 4.10 3.00 0.25 0.30

a. Forecast return of common equity (ROCE) and residual earnings for each year, 2013- 2015.
b. Based on your forecasts, do you think this firm is worth more or less than book value? Why?

Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...