A5 E5.1. Forecasting Return on Common Equity and Residual Earnings (Easy)The following are earnings and dividend forecasts made at the end of 2012 for a firm with "S$20.00 book value per common share at that time. The firm has a required equity return of10 percent per year.EPSDPS20133.000.2520143.600.2520154.100.30a. Forecast return of common equity (ROCE) and residual earnings for each year,2013-2015.b. Based on your forecasts, do you think this firm is worth more or less than book value?Why?

Forecasting the return on equity (ROE) is critical for investors and financial experts. ROE is an…

Answered: a. Forecast return of common equity…

a. Forecast return of common equity (ROCE) and residual earnings for each year, 2013-2015. b. Based on your forecasts, do you think this firm is worth more or less than book value? Why?

Survey of Accounting (Accounting I)

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter15: Capital Investment Analysis

Section: Chapter Questions

Problem 15.1.2MBA

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Question

E5.1. Forecasting Return on Common Equity and Residual Earnings (Easy)
The following are earnings and dividend forecasts made at the end of 2012 for a firm with "S
$20.00 book value per common share at that time. The firm has a required equity return of
10 percent per year.
EPS
DPS
2013
3.00
0.25
2014
3.60
0.25
2015
4.10
0.30
a. Forecast return of common equity (ROCE) and residual earnings for each year,
2013-2015.
b. Based on your forecasts, do you think this firm is worth more or less than book value?
Why?

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