The Diamond Outlet has current earnings per share of $1.96 and an expected earnings growth rate of 2.2 percent.

The Diamond Outlet has current earnings per share of $1.96 and an expected earnings growth rate of 2.2 percent. The required return on the stock is 13 percent and the current book value per share is $12.70. What is the current market value of this stock?

EPS0=1.96

G=2.2%

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K=13%

B0=12.7

P0=?

RESIDUAL INCOME MODEL

P0=(EPS1-(B0*G))/(K-G)

=(1.96(1+0.022)-(12.7*0.022))/(0.13-0.02)=$15.96