Financial Statement

M 5.3

A. Forward P/E= price per share/forecast of next year’s EPS=$63.2/$4.54=13.92

BPS=$5,224/420.9=$12.41

P/B=$63.2/$12.41=5.09

B. Value=12.41+3.423/1.09+3.643/1.188+(3.643*1.04)/(1.188*(1.09-1.04))= $82.40 (See Excel Attachment for detail of calculations)

C. Value=Book value of 2009+continuing value= $17.06+75.78=$92.84

D. Re=0.05+0.6*0.05=8%

When required rate of return is 8%, value=12.41+3.547/1.08+3.789/1.166+(3.789*1.04)/(1.166*(1.08-1.04))=$103.45

When required rate of return is 10%,

value=12.41+3.299/1.1+3.497/1.21+(3.497*1.04)/(1.21*(1.1-1.04))=$68.39

E.

1. Price = $63.2, BPS = $12.41,

Residual Earning = Actual earnings – Expected Earnings

Based on previous calculation:

RE for 2008 = $4.54 – 9%* $12.41 = $3.42

RE for 2009 = $3.643

CV = (3.643* growth rate)/ 1.188* (1.09 – g)

So, $63.2 = $12.41+ ($3.42/1.09) +($3.642/1.188) + ((3.643* growth rate)/ 1.188* (1.09 – g))

After calculation, growth rate = 2%

2. RE for 2010 = $3.643* 1.02 = $ 3.716

Earnings