Forecasting return on common equity and residual earnings, Finance Basics

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Forecasting return on common equity and residual earnings

Question: 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 $20.00 book value per common share at that time. The firm has a required equity return of 10 percent per year.

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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