Satay Motors, Inc. has expected EPS of $4.50, $6.25, $7.75 for the next three years, respectively. Analysts expect that Satay will pay out 20% of EPS as dividends in years 1, 2 and 3. Satay is then expected to pay a liquidating dividend (an amount over and above the regular dividend of 20% of EPS) of $42.80 in year 3 (this is a liquidating dividend; analysts expect Satay will cease operations after Year 3). Satay's current book value is $28.00 per share, and its required rate of return on equity is 14 percent. Estimate the stock's value using the residual income model equation.
Get Answers For Free
Most questions answered within 1 hours.