Consider ABC Companys financial statements given below. This company belongs to the retail sector and the current market price is $20 per shares with 50,000 common shares outstanding. All net income is reinvested back into the company. Assume the Companys beta on YEAR 0 is estimated to be 1.75, due to a lack of historical data. For the foreseeable future, the risk-free rate is 2.5%, and the market risk premium is 11%. Furthermore, assume the company has a long-term growth rate in comprehensive income and FCF for 2.5% after the fifth year. Net income and comprehensive income will be identical. Expect debt to equity ratio and WACC to be the same after year 5 and beyond.

1. 2) What is the company's value using the following methods?

   1. a) Residual Income

   2. b) Free Cash Flow (FCFF and FCFE) Assume no change in cash liquidity

   3. c) Valuation Ratios (Market Multiples), use at least three ratios.

   4. d) which one of the above valuation methods provides a better and more realistic valuation based on the solutions and data in this case.

Income Statements Year 1 Year 2 Year 3 Year 4 Year 5 Revenues $2.173.600 $2.282.280 $2.396.394 $2.516.214 $2.667,024 Cost of Sales 1,395,708 1,490,980 1,578,910 1,685,954 1,814,508 Gross Profit $777,892 $791,300 $817,484 $830,259 $852,516 Accounting $6,240 $6,552 $6,880 $7,224 $7,585 Advertising & Promotion CO $42,640 $40,363 $37.778 $34,853 Bank Charges $47,759 $43,156 $256,509 $2,496 $1,040 $349,440 Consulting Fees $45,314 $264,204 $0 $1,092 $349,440 $47,579 $272,130 $0 $1,147 $349,440 $49,958 $280,294 $0 $1,204 $349,440 $52,457 $288,702 $0 $1,265 $349,440 Insurance Lease - Facilities Legal & Professional Licenses & Fees 500 500 500 500 500 500 510 520 531 541 Maintenance 600 612 624 637 649 Miscellaneous 1,800 1.836 1,873 1.910 1.948 Office supplies 2,700 2,754 2,809 2,865 2,923 Security 720 742 764 787 810 Telephone 1,800 1,836 1,873 1.910 1.948 Utilities 4,200 4,410 4.631 4,862 5,105 Website 1,800 1,800 1.800 1.800 1.800 Total Operating Exp. 721,260 724,242 732,932 7 41,700 750,525 EBIDTA $56,633 $67,058 $84,552 $88,560 $101,991 Depreciation 4,916 4.916 4.916 4,916 4.916 Operating Profit $97,075 $51,717 11040 $62,142 10488 $79,636 9936 $83,644 9384 Interest Expense 8832 Earnings Before Taxes 40.677 51,654 69,700 74,260 88,243 Income Taxes 8,542 $32,135 10,847 $40,807 14,637 $55,063 15,595 $58,665 18,531 $69,712 Net Income Balance Sheets Cash Inventory Total Current Assets Begin $33,150 77,000 $110,150 Year 1 $50,685 191,916 $242,601 Year 2 80,307 213,416 $293,723 Year 3 122,461 237,641 $360,102 Year 4 166,233 264,950 $431,183 Year 5 239,914 278,197 $518,111 Fixed Assets Less: Depreciation 33,850 0 33,850 4,916 33,850 9,832 33,850 14,748 33,850 19,664 14,186 445,369 33,850 24,580 9,270 527,381 Net Fixed Assets 33,850 144,000 28.934 271,535 24,018 317,741 19, 102 379,204 Total Assets Accounts Payable Long Term Debt Total Liabilities 100,000 87,400 110,000 82,800 121,000 78,200 133,100 73,600 150,000 69,000 92,000 92,000 187,400 192,800 199,200 206,700 219,000 Owner's Equity Paid in Capital Retained Earnings Total Liabilities & Equity 52.000 0 52.000 3 2,135 52,000 72,941 52,000 128,004 52,000 186,669 52,000 256,381 $144,000 $271,535 $317,741 $379,204 $445,369 $527,381 Income Statements Year 1 Year 2 Year 3 Year 4 Year 5 Revenues $2.173.600 $2.282.280 $2.396.394 $2.516.214 $2.667,024 Cost of Sales 1,395,708 1,490,980 1,578,910 1,685,954 1,814,508 Gross Profit $777,892 $791,300 $817,484 $830,259 $852,516 Accounting $6,240 $6,552 $6,880 $7,224 $7,585 Advertising & Promotion CO $42,640 $40,363 $37.778 $34,853 Bank Charges $47,759 $43,156 $256,509 $2,496 $1,040 $349,440 Consulting Fees $45,314 $264,204 $0 $1,092 $349,440 $47,579 $272,130 $0 $1,147 $349,440 $49,958 $280,294 $0 $1,204 $349,440 $52,457 $288,702 $0 $1,265 $349,440 Insurance Lease - Facilities Legal & Professional Licenses & Fees 500 500 500 500 500 500 510 520 531 541 Maintenance 600 612 624 637 649 Miscellaneous 1,800 1.836 1,873 1.910 1.948 Office supplies 2,700 2,754 2,809 2,865 2,923 Security 720 742 764 787 810 Telephone 1,800 1,836 1,873 1.910 1.948 Utilities 4,200 4,410 4.631 4,862 5,105 Website 1,800 1,800 1.800 1.800 1.800 Total Operating Exp. 721,260 724,242 732,932 7 41,700 750,525 EBIDTA $56,633 $67,058 $84,552 $88,560 $101,991 Depreciation 4,916 4.916 4.916 4,916 4.916 Operating Profit $97,075 $51,717 11040 $62,142 10488 $79,636 9936 $83,644 9384 Interest Expense 8832 Earnings Before Taxes 40.677 51,654 69,700 74,260 88,243 Income Taxes 8,542 $32,135 10,847 $40,807 14,637 $55,063 15,595 $58,665 18,531 $69,712 Net Income Balance Sheets Cash Inventory Total Current Assets Begin $33,150 77,000 $110,150 Year 1 $50,685 191,916 $242,601 Year 2 80,307 213,416 $293,723 Year 3 122,461 237,641 $360,102 Year 4 166,233 264,950 $431,183 Year 5 239,914 278,197 $518,111 Fixed Assets Less: Depreciation 33,850 0 33,850 4,916 33,850 9,832 33,850 14,748 33,850 19,664 14,186 445,369 33,850 24,580 9,270 527,381 Net Fixed Assets 33,850 144,000 28.934 271,535 24,018 317,741 19, 102 379,204 Total Assets Accounts Payable Long Term Debt Total Liabilities 100,000 87,400 110,000 82,800 121,000 78,200 133,100 73,600 150,000 69,000 92,000 92,000 187,400 192,800 199,200 206,700 219,000 Owner's Equity Paid in Capital Retained Earnings Total Liabilities & Equity 52.000 0 52.000 3 2,135 52,000 72,941 52,000 128,004 52,000 186,669 52,000 256,381 $144,000 $271,535 $317,741 $379,204 $445,369 $527,381