# RI

Diamond Corp. (DC) has a beginning book value per share of \$5.00, an expected growth rate of 15 percent, forecasted earnings per share of \$1.20, and a required rate of return of 17 percent. Assuming that the dividend remains constant at \$0.55 per share, what is next years expected residual income per share? A) \$0.42. B) \$0.35. C) \$0.50. D) \$0.85. Does this look correct?? Just needed to confirm. RI1 = EPS1 - EC EC = BVPS0*r EC = 5*0.17 = 0.85 RI1 = 1.20 - 0.85 = 0.35 = B

Looks right to me. T/G

I got B. .35 this way: ROE = 1.20/5 = .24 then 5*(.24-.17) = .35

same thing… so yes, i think it’s correct.

A?, D would be this year’s RI. BV*r = .85 So this year’s RI = 1.2-.85 = .35 But for next year, instead look at reinvested earnings 1.2-.55 = .65 So BV1 = 5.65 BV1*r = 5.65*.17 = .9605 E1 = E0*(1+g) = 1.2*1.15 = 1.38 So next year’s RI = 1.38-.9605 = .4195

Guess it depends on how you interpret the tense.

So GOD and sf agreed to my way of doing this … but Schweser …err! Look at this… The original question and the original answer choce below Diamond Corp. (DC) has a beginning book value per share of \$5.00, an expected growth rate of 15 percent, forecasted earnings per share of \$1.20, and a required rate of return of 17 percent. Assuming that the dividend remains constant at \$0.55 per share, what is next years expected residual income per share? A) \$0.42. B) \$1.38. C) \$0.50. D) \$5.83. Your answer: C was incorrect. The correct answer was A) \$0.42. EPS next year = 1.20 × 1.15 = \$1.38. Forecast book value per share = BV0 + EPS - D = 5.00 + 1.20 - 0.55 = \$5.65. The per share equity charge is 5.65 × 0.17 = \$0.961. Thus, residual income is expected to be 1.38 0.961 = \$0.42.

atta boy swan.

I get lucky every once in awhile, hence the name.

Thanks BS - I am 100% going to FAIL this exam. I might not sit for it too… Let’s see Monday is the decider.

dinesh.sundrani Wrote: ------------------------------------------------------- > Thanks BS - I am 100% going to FAIL this exam. I > might not sit for it too… Let’s see Monday is the > decider. What are you talking about dinesh? You have to sit for the exam.

Forecasted earnings trciked me for being earnings for next year =(

dinesh, come on! you are a lock for this exam, 100% T/G

So basically they are asking for RI2 instead of RI1. The wording is a little fuzzy.

I will let you guys know my decission (I need time to think) … Even If I do not decide to take it this year, I will make sure I sit for it whole 6 hrs for your betterment. I want all of you to be at LIII next year. Good luck

mwvt9 Wrote: ------------------------------------------------------- > dinesh.sundrani Wrote: > -------------------------------------------------- > ----- > > Thanks BS - I am 100% going to FAIL this exam. > I > > might not sit for it too… Let’s see Monday is > the > > decider. > > What are you talking about dinesh? You have to > sit for the exam. That’s right, Dinesh you and I are taking a trip to margaritaville man.

Stop this sillyness. I say you pass and I’ll back that up with 320,000 Vietnam Dong to your \$20. In fact, I’m tempted to make that a correlation trade for all you sandbaggers. I’ll sell protection… dinesh, black swan, mwvt, banni … \$50 each lands 2,500,000 (VND) to the first one to find out they didn’t pass. Easy money for me, baby. Daddy likey.

no slouiscar. Please don’t bet your money on me. But If I decide to start studying again I will surely not let you down. I need some time for myself.

slouiscar Wrote: ------------------------------------------------------- > Stop this sillyness. > > I say you pass and I’ll back that up with 320,000 > Vietnam Dong to your \$20. > Oh, the things I would do with 320,000 Vietnamese Dongs

slouiscar Wrote: ------------------------------------------------------- > In fact, I’m tempted to make that a correlation > trade for all you sandbaggers. I’ll sell > protection… dinesh, black swan, mwvt, banni … > \$50 each lands 2,500,000 (VND) to the first one to > find out they didn’t pass. I am trying to evaluate this trade, but I can’t find the exchange rate for VND on bloomberg.