Reading 45: Residual Income Valuation- LOS c(part2)～ Q1-3 income

youzizhang

 

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.

youzizhang

 

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

 

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