A+ Answer

1. Estimate the value of Khosrow Aerospace shares using the residual income model. Relevant information is collected below: • Book value per share = $15.00 • Projected per share net income and projected dividends for the next five years: Year 1 2 3 4 5

Net income 3.00 3.40 3.80 4.20 4.60 Dividends 1.00 1.00 1.20 1.40 1.60 • Trailing P/E ratio at the end of year 5 = 12 • Required rate of return on equity = 9% What is the value per share of Khosrow Aerospace? Show your work in an Excel model.