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Basic Question 2 of 3
Consider the following information about a company:
- ROE: 15%. Growth rate: 10%. The company is expected maintain them forever.
- Book value per share: $50.00.
- Cost of equity: 12%.
Calculate the equity value using the single-stage residual income model.
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I passed! I did not get a chance to tell you before the exam - but your site was excellent. I will definitely take it next year for Level II.
Tamara Schultz
Learning Outcome Statements
explain fundamental determinants of residual income;
explain the relation between residual income valuation and the justified price-to-book ratio based on forecasted fundamentals;
calculate and interpret the intrinsic value of a common stock using single-stage (constant-growth) and multistage residual income models;
CFA® 2025 Level II Curriculum, Volume 4, Module 24.