Maurice Tutor

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Algebra,Applied Sciences,Biology,Calculus,Chemistry,Economics,English,Essay writing,Geography,Geology,Health & Medical,Physics,Science Hide all
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Education

  • MCS,PHD
    Argosy University/ Phoniex University/
    Nov-2005 - Oct-2011

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    Phoniex University
    Oct-2001 - Nov-2016

Category > Accounting Posted 14 Aug 2017 My Price 13.00

data represent total assets,

13.13      COMPUTING RESIDUAL INCOME.  The following data represent total assets, book value, and market value of common shareholders’ equity (dollar amounts in millions) for Abbott Labs, IBM, and Target Stores. Abbott Labs manufactures and sells

 

 

health  care  products.  IBM  develops  and  manufactures  computer  hardware  and  offers related technology services. Target Stores operates a chain of general merchandise discount retail stores. In addition, these data include existing market betas for the three firms and analysts’ consensus forecasts of net income for Year +1 (in millions). Assume that for each firm, analysts expect other comprehensive income items for Year +1 to be zero; so Year +1 net income and comprehensive income will be identical. Assume that the risk-free rate of return in the economy is 4.0 percent and the market risk premium is 5.0 percent.

 

 

Abbott Labs

 

IBM

Target Stores

Total Assets

$42,419

$109,524

$44,106

Common Equity:

 

 

 

Book Value

$17,480

$  13,466

$13,712

Market Value

$83,050

$166,420

$34,600

Market Equity Beta

0.27

0.73

1.09

Analysts’ Consensus Forecasts

 

 

 

of Net Income for Year +1

$  5,750

$  12,956

$  2,384

Required

a.    Using the CAPM, compute the required rate of return on equity capital for each firm.

b.   Project required income for Year +1 for each firm.

c.    Project residual income for Year +1 for each firm.

d.   What do the different amounts of residual income imply about each firm? Do the projected residual income amounts help explain the differences in market value of equity across these three firms? Explain.

Answers

Maurice Tutor
(5)
Status NEW Posted 14 Aug 2017 09:08 PM My Price 13.00

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