CFA Practice Question

There are 201 practice questions for this study session.

CFA Practice Question

An analyst is forecasting residual income for a company that has just announced its annual earnings per share of last fiscal year at $9.2. Analysts expect its earnings to grow at 13.5% a year indefinitely. The company is expected to pay out 30% of its earnings. Its current book value per share is $25. The cost of equity is 20%. The residual income of the company at the end of the third fiscal year is estimated to be ______.
A. $5.3
B. $5.5
C. $5.6
Explanation: The following table demonstrates calculation of residual earnings for each of the next 3 fiscal years:

User Contributed Comments 3

User Comment
yesficom BVPS FY1= 25*.12 = 3
flape i think 12% is a typo. it has to be 20% and that corresponds with the calc in the chart,
danlan2 BP1=25,

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