Case (total point 60 with 20 point each number) Problem 1 (point 20) LO-3: Analyze investment, cash flow and expanded analysis In July 2010, financial analysts regressed the price to book ratios against the fundamentals identified in the preceding section-the return to equity, the payout ratio, the beta, and the expected earnings growth rate over the next five years (from analyst forecasts). PBV = 1.09 + 8.93 ROE +.809 Payout ratio +.917 Beta + 7.55 expected growth rate The regression has an R-squared of 43.2 % Assume that you had been asked to value a private firm early in 2011 and that you had the following data on company: Book value of equity $ 100 million Net income in 2010 20 million Dividend paid 8 million Beta based on comparable firms 1.25 Assume also that the firm reinvested $ 12 million in 2010 and earnings are expected to grow 25% a year to the next five years. a) Calculate the independent variables in the desired unit. (5%) b) Compute the predicted price-book ratios and market value of firm. (10%) c) Interpret the R-squared of this regression. (5%)