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  1. business
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  3. 1. based on the following information on a hypothe

1. Based on the following information on a hypothetical company, perform an equity evaluation using...

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Accounting

1. Based on the following information on a hypothetical company, perform an equity evaluation using residual earnings (RE) model. You should also make an investment recommendation based on your work.
Current market price per share AU$ 18.00
Current P/B ratio 1.5
Companys market beta 0.8
Australian average risk-free rate 2.5%
Australian average share market return 9%
Companys sustainable long-term growth rate after 5 years 3%
Companys cost of capital 8%
Companys dividend payout ratio 40%
Forecasted ROCE for the next 5 years 15%,14%,13%,12%,11%
Note: ROCEt = Earningst / Book Valuet-1

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