One year ago, Castle Burgers, Inc., had a book value per share of $16.08. The ea
ID: 2749013 • Letter: O
Question
One year ago, Castle Burgers, Inc., had a book value per share of $16.08. The earnings per share for this past year were $2.68. What was the residual income per share if the earnings growth rate was 5 percent and the required discount rate was 14 percent?
$.38
$.40
$.43
$.49
$.52
The president of Whistle Stop Cafés recently announced that the corporation will be liquidating. The company plans on paying a $5 dividend next year and a final dividend of $22.50 two years from now. If the discount rate is 16 percent, what is one share of this stock worth today?
$18.78
$19.51
$20.03
$21.03
$24.40
$.38
$.40
$.43
$.49
$.52
Explanation / Answer
2.
Current EPS 2.68 Discuount rate 16% Period Cash flow Cash flow/(1+discount rate)^n 0 0 1 5 4.3103448 2 22.5 16.721165 21.03151 Charge for Equity Capital = •Required return on equity × Beginning book value per share 2.2512 Residual Income in Year 1 = •EPS – Charge for equity capital 0.43Related Questions
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