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Suppose ABC shares are currently selling at $394.60. Suppose ABC doesn't pay any dividends, and has...

Suppose ABC shares are currently selling at $394.60. Suppose ABC doesn't pay any dividends, and has the following information:

  • EPS0 = $30
  • k = 20%
  • B0 = $100

If we believe that the current share price is correctly priced, what should be the growth rate when we use the residual income model?

A. approx. 13%

B. approx. 15%

C. approx. 17%

D. approx. 13%

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Answer #1

- Value of Equity Ifrice), to - Bo + ROE - kx Bo K-9 Where A Bo = $10oo, K= 20%, Rooi ROF & = EPS = $30 - 30%. Brovelo pa sha

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