The following forecasts of earnings per share (EPS) and dividend per share (DPS) were made at the

Question:

The following forecasts of earnings per share (EPS) and dividend per share (DPS) were made at the end of 2012:

2014 2015 2016 2017 2013 3.90 1.00 3.70 1.00 EPS DPS 3.31 1.00 3.59 1.00 3.90 1.00

The firm has an equity cost of capital of 12 percent per annum. (This is the same pro forma used in the residual earnings valuation in Exercise E5.4.)
a. Calculate the abnormal earnings growth (in dollars) that is forecast for each year, 2014 to 2017.
b. What is the per-share value of the equity at the end of 2012 based on the abnormal earnings growth valuation model?
c. What is the expected trailing P/E at the end of 2017?
d. What is the forecasted per-share value of the equity at the end of 2017?

Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of... 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...