This is an extension to in-class exercise E5.9. Here I assume ROCE at 2005 = 13%.

In addition, I assume a constant perpetuity for RE after 2005, i.e., all the REs after 2005 equals to RE2
1999

2000

2001

EPS

2.39

3.45

DPS

1.06

1.12

11.29

13.62

residual earning(11%)

1.29

2.21

ROCE

24%

31%

PV of RE

1.17

1.79

BPS

9.96

total PV of RE to 2004

3.78

PV of CV

1.73

value per share

Required Rate of return

15.47
11%

RE2006=RE2005, assume constant perpetuity

RE2005=?

0.32

V1999=?

15.47

Forecasted value of equity at 2004

18.90

"= B2004+ CV2004"

Es after 2005 equals to RE2005.

2002

2003

2004

2005

2.28

2.00

1.71

1.16

1.22

1.24

14.74

15.52

15.99

0.78

0.38

0.00

0.32

17%

14%

11%

13%

0.57

0.25

0.00

CV at 2004

2.91
1.73

at 2004