Regency Co. has a current book value of $13.00 per share and no dividends has been...
Regency Co. has a current book value of $13.00 per share and no
dividends has been paid. The most recent earnings per share were
$3.92 and earnings are expected to grow at 4.5% forever. Stock’s
beta is 0.85, T-bill rate is 3.2% and S&P 500 return is 13.5%.
Assume the clean surplus relationship is true. Assuming the company
maintains a constant retention ratio, what is the value of the
stock according to the residual income model?
$38.70
$47.10
$55.20
$41.60
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