Doubt about ROE

gcm1988 · May 31, 2017, 4:21pm

Dear all,

I have a rapid question about ROE, I was rechecking my Equites notes, and I dont know it is maybe because the exam is so close this moment or I’m just losing my mind at this point, but in the Residual Income the formula to get the V is : B₀ + Σ E_t - rB_t-1/(1+r)^t , and this formula can be written as B₀ + Σ ROE - r (B_t-1)/(1+r) , so this is my question, ROE_t is always E_t/B₀ or just in this case we take E_t/B_t-1 ,(time - 1, the book value of the prior period), thank you very much and good luck this saturday!!!

Gabriel

grappler185 · May 31, 2017, 4:50pm

ROE_t = E_t/B_t-1.

i think you can also use the formula V = B₀ + B₀ x (ROE - r_e) / (r_e-g) which is basically same if you have constant growth