After careful financial statement analysis, we obtain these predictions for Colin Technology: Colin Technologys cost of equity capital is estimated at 13%. Required: a. Abnormal

After careful financial statement analysis, we obtain these predictions for Colin Technology:

Colin Technology’s cost of equity capital is estimated at 13%.

Required:
a. Abnormal earnings are expected to be $0 per year after Year 7. Use the accounting-based equity valuation model to estimate Colin’s value at the beginning of Year 1.
b. Determine Colin’s PB ratio using the results in (a). Colin’s actual market-based PB ratio is 1.95. What do you conclude from this PB comparison?
c. Determine Colin’s PE ratio using the results in (a). Colin’s actual market-based PE ratio is 10. What do you conclude from this PE comparison?
d. If we expect Colin’s sales and profit margin to remain unchanged after Year 7 with a stable book value of $8,506, use the accounting-based equity valuation model to estimate Colin’s value at the beginning of Year1.

Beginning Year Net Income Bok Value Beginning Year Net Income Bok Value $1,034 1,130 1,218 1,256 $5,308 5,292 5,834 6,338 $1,278 1,404 1,546 $6,728 7,266 7,856