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Basic Question 1 of 2

A company's current BVPS is $50. Consensus EPS estimates for the next two years are $6 and $8. After the second year residual income is expected to be equal to year 2's economic profits indefinitely. The required rate of return on equity is 10%. It is not expected to pay dividends. The company's intrinsic value per share is ______.
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User Contributed Comments 2

User Comment
ssradja Don't forget that BV goes up by EPS - D
quanttrader last term is PV of RI perpetuity
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I just wanted to share the good news that I passed CFA Level I!!! Thank you for your help - I think the online question bank helped cut the clutter and made a positive difference.
Edward Liu

Edward Liu

Learning Outcome Statements

compare residual income models to dividend discount and free cash flow models;

explain strengths and weaknesses of residual income models and justify the selection of a residual income model to value a company's common stock;

CFA® 2025 Level II Curriculum, Volume 4, Module 24.