LOS c, (Part 2): Calculate the intrinsic value of a share of common stock using the residual income model.
Q1. Crystal Offerings has a current book value per share (BVPS) of $6.00 and expected residual income over the next three years of $0.45, $0.65, and $4.12, respectively. Given a required rate of return on equity of 12%, what is the value of the stock using the residual income model?
A) $11.22.
B) $3.26.
C) $9.85.
Q2. Crystal Offerings has a current book value per share of $9.00 and expected residual income over the next three years of $0.55, $0.72, and $3.08, respectively. Given a required rate of return on equity of 12%, what is the value of the stock using the residual income model?
A) $12.26.
B) $9.26.
C) $3.26.
Q3. Legend Software Corp. has a current book value per share of $6.00 and expected residual income over the next three years of $0.55, $0.72, and $3.08, respectively. Given a required rate of return on equity of 12%, what is the value of the stock using the residual income model?
A) $3.26.
B) $9.26.
C) $10.35.
LOS c, (Part 2): Calculate the intrinsic value of a share of common stock using the residual income model. fficeffice" />
Q1. Crystal Offerings has a current book value per share (BVPS) of $6.00 and expected residual income over the next three years of $0.45, $0.65, and $4.12, respectively. Given a required rate of return on equity of 12%, what is the value of the stock using the residual income model?
A) $11.22.
B) $3.26.
C) $9.85.
Correct answer is C)
V0 = 6.00 + (0.45 / 1.12) + (0.65 / 1.122) + (4.12 / 1.123) = $9.85
Q2. Crystal Offerings has a current book value per share of $9.00 and expected residual income over the next three years of $0.55, $0.72, and $3.08, respectively. Given a required rate of return on equity of 12%, what is the value of the stock using the residual income model?
A) $12.26.
B) $9.26.
C) $3.26.
Correct answer is A)
V0 = 9.00 + [0.55 / 1.12] + [0.72 / (1.12)2] + [3.08 / (1.12)3] = $12.26
Q3. Legend Software Corp. has a current book value per share of $6.00 and expected residual income over the next three years of $0.55, $0.72, and $3.08, respectively. Given a required rate of return on equity of 12%, what is the value of the stock using the residual income model?
A) $3.26.
B) $9.26.
C) $10.35.
Correct answer is B)
V0 = 6.00 + [0.55 / 1.12] + [0.72 / (1.12)2] + [3.08 / (1.12)3] = $9.26
c
thanks
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