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Basic Question 1 of 2
A company's current BVPS is $50. Consensus EPS estimates for the next two years are $6 and $8. After the second year residual income is expected to be equal to year 2's economic profits indefinitely. The required rate of return on equity is 10%. It is not expected to pay dividends. The company's intrinsic value per share is ______.
User Contributed Comments 2
| User | Comment |
|---|---|
| ssradja | Don't forget that BV goes up by EPS - D |
| quanttrader | last term is PV of RI perpetuity |
I was very pleased with your notes and question bank. I especially like the mock exams because it helped to pull everything together.
Martin Rockenfeldt
Learning Outcome Statements
compare residual income models to dividend discount and free cash flow models;
explain strengths and weaknesses of residual income models and justify the selection of a residual income model to value a company's common stock;
CFA® 2025 Level II Curriculum, Volume 4, Module 24.