Bonnie2023-10-27 15:47:48

Stark asks Parker to evaluate whether the common stock of Company D is undervalued, fairly valued, or overvalued based on a residual income model. Parker uses the two-stage residual income model to value Company D’s share. For her analysis, she assumes the following: l Current market price is $24.00. l Beginning book value per share is $20.00. l Earnings per share will be 32% of beginning book value for the next year. l Cash dividends will be 50% of earnings per share for the next year. l At the end of the year, the stock's P/B ratio will be 1.1. l Required rate of return on equity is 10%.