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E5.3. A Residual Earnings Valuation (Easy) An analyst presents you with the following pro forma...

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E5.3. A Residual Earnings Valuation (Easy) An analyst presents you with the following pro forma (in millions of dollars) that gives her forecast of earnings and dividends for 20132017. She asks you to value the 1,380 million shares outstanding at the end of 2012, when common shareholders' equity stood at $4,310 million. Use a required return for equity of 10 percent in your calculations. 2013E 2014E 2015E 2016E 2017E Earnings 388.0 570.0 599.0 629.0 660.4 Dividends 115.0 160.0 349.0 367.0 385.4 a. Forecast book value, return on common equity (ROCE), and residual earnings for each of the years 2013-2017. b. Forecast growth rates for book value and residual earnings for each of the years 20142017. c. Calculate the per-share value of the equity from this pro forma. Would you call this a Case 1, 2, or 3 valuation? d. What is the premium over book value given by your calculation? What is the P/B ratio

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