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Estimate of price per share using the dividend discount

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Reference no: EM131795215

Question - "Use the following information to answer the following questions: You are analyzing a large, stable company. For the year ending 12/31/02, the company reported earnings of $58,900, and book value at the end of 2002 was $371,700. You expect earnings to grow at 5 percent a year in perpetuity, and the dividend payout ratio of 70 percent to continue. The company borrows at 8%, and has a cost of equity of 12%. The company has 25,000 shares outstanding.

What is your estimate of price per share using the dividend discount model at 12/31/02?

a. $20.62

b. $21.65

c. $23.56

d. $24.74

What is your estimate of price using the residual income valuation model at 12/31/02?

a. $20.62

b. $21.65

c. $23.56

d. $24.72

Reference no: EM131795215

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