- CFA Exams
- CFA Level I Exam
- Topic 5. Equity Valuation
- Learning Module 24. Residual Income Valuation
- Subject 4. Fundamental Determinants of Residual Income
CFA Practice Question
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.
Correct Answer: V0 = B0 + [B0 x (ROE - r) / (r - g) ]] = 50 + 50 (0.15 - 0.12)/ (0.12 - 0.1) = $125.
User Contributed Comments 0
You need to log in first to add your comment.