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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
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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

Tamara Schultz

Learning Outcome Statements

explain continuing residual income and justify an estimate of continuing residual income at the forecast horizon, given company and industry prospects;

CFA® 2024 Level II Curriculum, Volume 4, Module 26.