After working through the material in this chapter you should focus attention on a stock of your choice to reinforce the steps covered.. Your goal is to initially become very familiar with the operational details and working through each step. The more experience you acquire the quicker you will be injecting your own professional judgment into the exercise. At the end of this exercise, you should be familiar with:

· The definition of residual income

· How it captures the notion of opportunity cost

· The necessary inputs, including comprehensive income projections, growth rates, and discount rates’

Finally, you have learned how to apply this important valuation model to estimate the expected return from a stock given it's spot price. In turn, this expected return can be used to forecast future price levels.