You are given the following information for ABB Company. As of year 1, the company's book...
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You are given the following information for ABB Company. As of year 1, the company's book value is RM80,000 and its cost of capital is 15%. Year 1 Year 2 Sales Year 5 RM135,000 RM130,000 RM130,000 RM120,000 RM160,329 Year 3 Year 4 Operating expenses 100,000 90,000 85,000 70,000 119,900 Depreciation 10,000 11,300 12,770 14,430 14,430 Net income 25,000 28,700 32,230 35,570 25,998 Dividends 8,000 4,355 3,120 12,700 10,820 Expected Book value 80,000 ROCE 0.313 0.296 0.266 0.236 0.150 Dividends for year 6 and beyond are expected to remain at year 5 level. (7.5 marks) a) Compute Company's abnormal earnings for year 1 to year 5 b) Use an accounting based valuation model to estimate the value of Company's equity on January 1st of year 1, year 2, year 3, year 4 and year 5 c) Use the Price-to-Earnings (PE) Ratio formula to determine the Price-to-Earnings (PE) Ratio on January 1st of year 2, year 3, year 4 and year 5 (7.5 marks) (10 marks) (Total: 25 marks) You are given the following information for ABB Company. As of year 1, the company's book value is RM80,000 and its cost of capital is 15%. Year 1 Year 2 Sales Year 5 RM135,000 RM130,000 RM130,000 RM120,000 RM160,329 Year 3 Year 4 Operating expenses 100,000 90,000 85,000 70,000 119,900 Depreciation 10,000 11,300 12,770 14,430 14,430 Net income 25,000 28,700 32,230 35,570 25,998 Dividends 8,000 4,355 3,120 12,700 10,820 Expected Book value 80,000 ROCE 0.313 0.296 0.266 0.236 0.150 Dividends for year 6 and beyond are expected to remain at year 5 level. (7.5 marks) a) Compute Company's abnormal earnings for year 1 to year 5 b) Use an accounting based valuation model to estimate the value of Company's equity on January 1st of year 1, year 2, year 3, year 4 and year 5 c) Use the Price-to-Earnings (PE) Ratio formula to determine the Price-to-Earnings (PE) Ratio on January 1st of year 2, year 3, year 4 and year 5 (7.5 marks) (10 marks) (Total: 25 marks)
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Answer rating: 100% (QA)
a Compute Companys abnormal earnings for year 1 to year 5 Abnormal earnings are the difference between the actual net income and the expected net income based on the cost of capital Year 1 Abnormal ea... View the full answer
Related Book For
Accounting Principles Part 1
ISBN: 978-1118306789
6th Canadian edition
Authors: Jerry J. Weygandt, Donald E. Kieso, Paul D. Kimmel, Barbara Trenholm, Valerie Kinnear, Joan E. Barlow
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