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    100 views1 page

    Exercise E5.13

    Uploaded by

    Sara Simões

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    © All Rights Reserved
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    of 1
    es. 55.12, 5.13, 5.14, Chapter Acct Accnmingand Vln Pron ik Ves 171 Valuating: General Electric Co. (Medium) Gener! Electric Co. reported a per-share book value of $10.47 in its balance sheet on Desember31, 2008 nearly 2005 analysts were forecasting consenss earnings per share of $1.71 for 2005 and $1.96 for 2006, The required eur for equity is 10 percent. The dividend ‘payout rato for 2005 is expected to be $0 percent of earings, Calulate the value per share ‘in early 2005 with forecast that residual earings will grow ata long-term growth ae of 4 percent, the average GOP growth mite, afer 2008. Real World Connection Exercises E610, E7.7, and E118 also deal with General Eletrie. Valuing Dividends or Return on Equity: General Motors Corp (Easy) ‘In April 2005, General Motors traded at $28 per share on book value of $49 per share. Analysts were estimating that GM would earn 69 cents per share for the year ending December 2005. The firm was paying an annual dividend atthe time of $2.00 per share 2 Caeulate the priceto-book ratio (PB) and the return on common equity (ROCE) that analysts were forecasting For 2005, b, Is the PB rato justified by the forecasted ROCE? €. An analyst umpeted the high dividend veld asa reason to buy the stock. (Dividend yields dividendprice.) “A dividend yield of oer 7 peeent is too juicy to pass up he Claimed. Would you rather focus onthe ROCE or on the dividend yield? Real World Connection Exercises E14, E2.12, and E411 also deal with General Motors, Converting Analysts’ Forecasts to a Valuation: Nike, nc. (Medium) ‘Nike reported book value per share of $15.93 atthe end ofits 2008 fiscal year. Analysts ‘were forecasting earnings of $3.90 per share for 2009 and $4.45 for 2010, and were also Forecasting five-year growth rate in EPS of 13 percent pe year. Prepare a five-year pro ‘forma of earnings based on these forecasts and conver the forecasts oa valet wit he ‘ued forecast that residual earnings will grow atthe GDP growth ie of 4 peeent pe year ater 2013. Usea required rerun of 10 percent in yout calculations. Table 5.2 in this chapter ill elp you [Nike traded at $60 per share atthe ime. Based on your calculations, do you think Nike is reasonably priced? What does your analysis tll you about the long-run growth rate that ‘the market is forecasting for Nike? Residual Earnings Valuation and Accounting Methods (Hard) Refer back tothe valuation in Exerise 5.3. n that pro forma, an analyst forecast $388 mil. lion of earnings for 2013 on a book value a the end of 2012 of $4310 million, that i, Tetum on comimon equity of9 percent. The frecass were made atthe end of 2012 based ‘on preliminary reports fom the fir. ‘When the final report was published, however, the analyst discovered thatthe rm had de

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