Question: Residual Earnings Valuation and Target Prices (Medium) The following forecasts of earnings per share (E PS) and dividend per share (DPS) were made at the end of 2012 for a firm with a book value per share of $22.00:
The firm has an equity cost of capital of 12 percent per annum.
a. Calculate the residual earnings that are forecast for each year, 2013 to 2017.
b. What is the per-share value of the equity at the end of 2012 based on the residual income valuation model?
c. What is the forecasted per-share value of the equity at the end of the year 2017? d. What is the expected premium in 2017?