Explain why analysts forecasts of earnings-per-share growth, Finance Basics

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Explain why analysts forecasts of earnings-per-share growth

Question: 1. Explain why analysts; forecasts of earnings-per-share growth typically underestimate the growth that an investor values if a firm pays dividends.

2. The following formula is often used to v alue shares, where Earn1 is forward earnings, r is the cost of capital, and g is the expected earnings growth rate.

VAlue of equity = Earn_l
r - g

Explain why this formula can lead to errors.

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Finance Basics: Explain why analysts forecasts of earnings-per-share growth

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