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Michelle has a meeting with her friend, an equity analyst in food and beverage ...
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Michelle has a meeting with her friend, an equity analyst in food and beverage industry, Vincent. Michelle is helping Vincent to value Jovan Food Company (JFC) using the residual income valuation. She uses data in Exhibit 1 to value the JFC.
Exhibit 1
Jovan Food Company Selected Information for Valuation, 31 December 2016
Net Income | $422 million |
Common Stock (par + paid in excess of par) | $ 1,075 million |
Retained Earnings | $ 1,078 million |
WACC | 11.9% |
Cost of debt before tax | 7% |
Cost of equity | 15% |
Expected growth rate for net income in 2017 | 14% |
After 2017, net income will decline linearly over the 6 years period | |
Final and perpetual growth rate | 5% |
Dividend payout ratio | 40% |
Shares outstanding | 150 million |
Based on Exhibit 1, Farrell’s estimate of JFC’s residual income per share for 2018 is closest to…………….