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

Year	Net income	Beginning Book Value
1	1034	5308
2	1130	5292
3	1218	5834
4	1256	6338
5	1278	6728
6	1404	7266
7	1546	7856

CHECK

(a) $7,205

(d) $8,644

Required:

a. Abnormal earnings are expected to be $0 per year after Year 7. Use the accounting-based equity valuation model to estimate Colins value at the beginning of Year 1.

b. Determine Colins PB ratio using the results in (a). Colins actual market-based PB ratio is 1.95. What do you conclude from this PB comparison?

c. Determine Colins PE ratio using the results in (a). Colins actual market-based PE ratio is 10. What do you conclude from this PE comparison?

d. If we expect Colins 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 Colins value at the beginning of Year 1.