How to calculate estimate of price per share?

June 26, 2014 9:51 PM

I'm stuck at a homework question for my first financial class online. No tutoring hour :( Here is the question: You are analyzing a large, stable company. For the year ending 12/31/02, the company reported earnings of $58,900, and book value at the end of 2002 was $371,700. You expect earnings to grow at 5 percent a year in perpetuity, and the dividend payout ratio of 70 percent to continue. The company borrows at 8%, and has a cost of equity of 12%. The company has 25,000 shares outstanding. Q1: What is your estimate of price per share using the dividend discount model at 12/31/02? Q2: What is your estimate of price per share using the residual income valuation model at 12/31/12? Thanks for looking into this. Have a great day!
posted by dy to Education