Task: The following forecasts of earnings per share (EPS) and dividend per share (DPS) were made at the end of 2007 for Company ABC:
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2008E
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2009E
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Next Three Years
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EPS
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4.35
|
5.23
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Growth at 11%
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DPS
|
0.55
|
0.68
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Growth at 11%
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The book value of ABC’s common equity at the end of 2007 was $13.89 per share. Please use the required return for equity of 12% to calculate the following items:
A. Forecast residual earnings for each of the years, 2008 – 2012.
B. Forecast abnormal earnings growth for each of the years, 2009 – 2012.