Question
On December 31, 2019, forecasting earnings per share of $1.30 for 2020 and $2.50 for 2021....
On December 31, 2019, forecasting earnings per share of $1.30 for 2020 and $2.50 for 2021. The cost of equity capital is 9%. the firm does not pay dividends.
Assume that the abnormal earnings growth (AEG) forecasted after 2021 will continue at the same level (as in 2021) into the future. Calculate the intrinsic value per share in early 2020.
Homework Answers
Answer #1
Intrinsic value = Present value of Future cash flows
Intrinsic Value (Po) = 
where, CF1, CF2 and CF3= Cash Flow at year 1, year 2 and year 3
Ke = Cost of equity = 9%
Intrinsic value (Po) = 
Intrinsic Value = $1.1926 + $2.1042 + $23.38
Intrinsic value of share = $26.6768
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