Equity valuation using the residual income free cash flow, Ask an Expert

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EQUITY VALUATION USING THE RESIDUAL INCOME, FREE CASH FLOW, AND DIVIDEND DISCOUNT MODELS. Exhibit 13.7 presents selected data from projected financial statements for Steak 'n Shake for Year +1 to Year +11. The amounts for Year +11 reflect a long-term growth assumption of 3 percent. The cost of equity capital is 9.34 percent.

Required

a. Compute the value of Steak 'n Shake as of January 1, Year +1, using the residual income model.

b. Repeat Part a using the present value of expected free cash flows to the common equity shareholders.

c. Repeat Part a using the dividend discount model.

d. Identify the reasons for any differences in the valuations in Parts a-c.

e. The market value of Steak 'n Shake on January 1, Year +1, is $309.98 million. Based on your valuations in Parts a-c, what is your assessment of the market value of this firm?

Text Book: Financial Reporting, Financial Statement Analysis and Valuation: A Strategic Perspective By James Wahlen, Stephen Baginski, Mark Bradshaw.

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Financial Accounting, Accounting

Category:- Financial Accounting
Reference No.:- M91576339

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