Question: Abnormal Earnings Growth Valuation and Target Prices (Medium) The following forecasts of earnings per share ( EPS) and dividend per share (DPS) were made at the end of 2012:
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.)
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 of2017?
d. What is the forecasted per-share value of the equity at the end of 2017?