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Abnormal earnings growth valuation and target prices

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Abnormal Earnings growth valuation and target prices

The following forecast of earnings per share (EPS) and dividend per share (DPS) were made at the end of 2006:
2007E 2008E 2009E 2010E 2011E
EPS 3.90 3.70 3.31 3.59 3.90
DPS 1.00 1.00 1.00 1.00 1.00

The firm has an equity cost of capital of 12% per annum.

1. Calculate the abnormal earnings growth for each year 2008 - 2011.
2. What is the per-share value of the equity at the end of 2006 based on the abnormal earnings growth valuation model?
3. What is the expected P/E for 2011?
4. What is the forecasted per-share value of the equity at the end of the year 2011?

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Solution Summary

Abnormal earnings growth valuation and target prices are examined. The earnings are calculated for the year 2008-2011.

Solution Preview

Attached is the Excel file with the computations and formulas.

2006 2007 2008 2009 2010 2011
EPS $3.90 $3.70 $3.31 $3.59 $3.90
Growth ...

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