Hello, I need help. Thanks Q1.Consider the following two earnings


Question Description:

30

Aug 04, 2015. Hello, I need help. Thanks Q1.Consider the following two earnings forecasting models: Show calculation Model 1         E t (EPS t+1 ) = EPS t Model 2         E t (EPS t+1 ) = E t (EPS t+1 ) is the expected forecasts of earnings per share for year t+1, given information available at t. Model 1 is usually called a random walk model for earnings, whereas Model 2 is called a mean-reverting model. The earnings per share for TJX for the fiscal years ending January 2006 (FY2005) through January 2010 (FY2009) are as follows: Fiscal Year 2005 2006 2007 2008 2009 EPS 1.40 1.60 1.70 2.00 2.80 What would be the forecast for earnings per share in FY2010 for each model? Show calculation Model 1 (random walk model): Model 2 (mean-reverting model): Actual earnings per share for TJX in FY2010 were $3.30. Given this information, what would be the FY2011 forecast for earnings per share for each model? Why do the two models generate quite different forecasts? Which do you think would better describe earnings per share patterns? Why? Model 1: Model 2: Q2. a. Manufactured Earnings is a “darling” of Wall Street analysts. Its current market price is $30 per share, and its book value is $5 per share. Analysts forecast that the firm’s book value will grow by 5 percent per year indefinitely, and the cost of equity is 10 percent. Given these facts, what is the market’s expectation of the firm’s long-term average ROE? b. Given the information in part a, what will be Manufactured Earnings’ stock price if the market revises its expectations of long-term average ROE to 20 percent? c. Analysts reassess Manufactured Earnings’ future performance as follows: growth in book value increases to 8 percent per year, but the ROE of the incremental book value is only 10 percent. What is the impact on the market-to-book ratio? Q3. Target Corporation: Ackman versus the Board. How are the business model differences reflected in Target;s and Walmart financial performance? How would you evaluate Target’s relative financial performance to Wal-Mart? What are the key metrics most useful to understanding their relative performance? How would you evaluate Target’s relative financial performance to Wal-Mart? What are the key metrics most useful to understanding their relative performance? Show all your work/calculations. Do not write as a paper, simply answer the above questions, but provide the supporting detail in doing so. Number each answer according to the corresponding question. ATTACHMENT PREVIEW Download attachment Finance.docx a. Q1.Consider the following two earnings forecasting models: Show calculation Model 1 Et(EPSt+1) = EPS t Model 2 Et(EPSt+1) = 1 5 5 EPS t t 1 Et(EPSt+1) is the expected forecasts of earnings per share for year t+1, given information available at t. Model 1 is usually called a random walk model for earnings, whereas Model 2 is called a mean-reverting model. The earnings per share for TJX for the fiscal years ending January 2006 (FY2005) through January 2010 (FY2009) are as follows: Fiscal Year 2005 2006 2007 2008 2009 EPS 1.40 1.60 1.70 2.00 2.80 b. What would be the forecast for earnings per share in FY2010 for each model? Show calculation Model 1 (random walk model): Model 2 (mean-reverting model): c. Actual earnings per share for TJX in FY2010 were $3.30. Given this information, what would be the FY2011 forecast for earnings per share for each model? Why do the two models generate quite different forecasts? Which do you think would better describe earnings per share patterns? Why? Model 1: Model 2: Q2. a.MnufctredEigs“l”oWSany.Itcuremkpis$30h,andbovlue5r.Aystfchaimbo’kvluewgry5pcntaidf,heosquy10prcnt.Givfa,whsemk’xpctionfrlg-maveROE? b.Giventhformap,wlbMucedEnigs’tokprfhmavexcinslog-trROE20p? c.AnalystreMufdEig’pomanceslw:rthbkvuio8pcenyar,thROEfimlbokvuesny10prct.Whaimoke-brt? Q3.TargetCopin:AckmvsuhBdHwaretboflincsdgT;raWmtilpefonc?Hwudy…

Answer

30