Problem -
Using the following proforma information regarding GE, Inc. based on analysts' forecast in early 2016:
|
|
2016E
|
2017E
|
Next 3 years
|
|
EPS
|
1.29
|
1.56
|
Growth at 7.59%
|
|
DPS
|
0.92
|
1.11
|
Growth at 10%
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The book value of GE's common equity as of 6/18/16 was $128,159 million with 10,080 million shares outstanding. Use a required return for equity of 14.92% for calculations.
Required:
a. Forecast residual earnings for each of the years, 2016-2021.
b. Determine the equity value of GE; assume that earnings will grow at 4% starting from 2021. The current price as of 6/18/16 is $30.60. Should we buy the stock?