Question - "Use the following information to answer the following questions: You are analyzing a large, stable company. For the year ending 12/31/02, the company reported earnings of $58,900, and book value at the end of 2002 was $371,700. You expect earnings to grow at 5 percent a year in perpetuity, and the dividend payout ratio of 70 percent to continue. The company borrows at 8%, and has a cost of equity of 12%. The company has 25,000 shares outstanding.
What is your estimate of price per share using the dividend discount model at 12/31/02?
a. $20.62
b. $21.65
c. $23.56
d. $24.74
What is your estimate of price using the residual income valuation model at 12/31/02?
a. $20.62
b. $21.65
c. $23.56
d. $24.72