Forecast book value and return on common equity

Assignment Help Finance Basics
Reference no: EM1356186

An analyst presents you with a following pro forma (in millions of dollars) that gives her forecast of earnings and dividends for 2007 -2011. She asks you to value the \$ 1,380 millions shares outstanding at the end of 2006, when common shareholder's equity stood at \$4,310 million. Use a required rate of return of 10 percent in your calculations.

2007E 2008E 2009E 2010E 2011E
Earnings 388.00 570.00 599.00 629.00 660.40
Dividends 115.00 160.00 349.00 367.00 385.40

a. Forecast book value, return on common equity (ROCE) and residual earnings for each of the years, 2007-2011

b. Forecast growth rates for book value and growth in residual earnings for each of the years, 2008-2011.

2. A share traded at \$26 at the end of 2006 with a price to book ratio of 2.0. Analysts are forecasting earnings per share of 2.60 for 2007. The required equity return is 10 percent. What is growth in residuals earnings that the markets expect for 2007 and beyond?

3. The following are earnings and dividends forecasts made at the end of 2006. The firm has a required equity return of 10 percent.

2007 2008 2009
EPS 3.00 3.60 4.10
DPS 0.25 0.25 0.30

a. Forecast the ex-dividend earnings growth rate and the cum-divided earnings growth rate for 2008 and 2009.

b. Forecast abnormal earnings growth for 2008 and 2009.

c. Calculate the normal forward P/E for this firm.

d. Based on you forecast, do you think that this firm will have a forward P/E greater than the normal P/E. Why?

4. In early 2003, analysts were forecasting earnings for General Motors Corporation of 4.62 per share for 2003 and 6.77 for 2004. GM was expected to pay a dividend of \$ 2.00 per share in 2003. Use a required rate of return of 12 percent in the calculations below

a. Calculate cum-dividend earnings and the cum-dividend earnings rates and the cum-dividend earnings growth rate forecasted for 2004.

b. Calculate forecasted abnormal earnings growth for 2004.
c. GM was trading at \$39 in early 2003. Calculate the forward P/E that the market was giving this stock. Also, calculate the PEG ratio that evaluates the forward P/E. What does the PEG ratio suggest?

The different users of financial statement analysis

Some of the different users of financial statement analysis include short-term lenders, long-term lenders, and investors. Which ratios would each of these users be most in

What is the value of the stock

A stock will pay dividends of \$1.0, \$4.0, and \$8.0 over the next three years, and then increase dividends at a rate of 7.0% afterwards. Its required rate of return is 19.0%.

What was ratio of gross federal debt held by public to gdp

What was the ratio of the gross federal debt held by the public to GDP in 2015? What percentage of total federal revenue came from individual income taxes and payroll taxes in

What is quantitative and what is qualitative

Suppose you work for a bank. The vice president of marketing has assigned you to gather data for use in a competitive analysis of the bank's customer service. She asks you t

What does the term bricolage mean

1. What are some of the more experimental ways that early sound films used music? 2. What does the term "bricolage" mean? How is Kalinak using it as a descriptive term?  3. Ho

Provide a detailed overview of the selected us investment

Provide a detailed overview of the selected U.S. investment indicating the rationale for your selection. Analyze the price of the investment to its market index for the past f

Why these companies waited two years after the losses

Speculate why AT&T, Honeywell, and Verizon are changing the method for accounting for pension gains and losses. Then, speculate why these companies waited two years after the

Develop a long term financial plan

Develop a long term financial plan that is expected to be in place after the initial growth phase of the business. IE what is a sustainable amount of revenue and costs for F

Write a Review 