Question

Beagle Beauties engages in the development, manufacture, and sale of a line of cosmetics designed to make your dog look glamorous. Below you will find selected information necessary to compute some valuation estimates for the firm. Assume the values provided are from year-end 2019. Also assume that the firm’s equity beta is 1.50, the risk-free rate is 2.70 percent, and the market risk premium is 7.0 percent. Dividends per share $ 2.28 Return on equity 9.50 % Book value per share $ 18.85 Earnings Cash Flow Sales 2019 value per share $ 5.00 $ 6.30 $ 25.65 Average price multiple 13.10 9.54 2.48 Forecasted growth rate 13.60 % 11.29 % 7.37 % The required return is 13.20 percent. Use the clean surplus relationship to calculate the share price for Beagle Beauties with the residual income model. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Answer 1

Given

Dividend Per Share	$2.28			Beta	1.5
ROE	9.50%			Rf	2.70%
Book Value Per Share	$18.85			MRP	7%
	Earning Per Share	Cash Flow	Sales
2019 Value Per Share	$                              5.00	$       6.30	$    25.65
Average Price Multiplie	13.1	9.54	2.48
Forecasted Growth Rate	13.60%	11.29%	7.37%

Clean Surplus means dividends are not included

Clean Surplus relation is as follows

Ending Book Value = Begining Book Value + Net Income - Dividend

=$18.85+$5-$2.28

=$21.57

Ending Book Value is $21.57

Share Price using Residual Value

V= B +B * ( Required Return- RoE/ Required Return – Growth Rate)

Where V = Share Price , B is Book Value

V = $21.57 + $ 21.57 * ((9.50%-13.20%)/13.20%-11.29%))

V = $21.57 + $(41.78)

V = $(20.21)