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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 am using your study notes and I know of at least 5 other friends of mine who used it and passed the exam last Dec. Keep up your great work!
Barnes
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.