Hi I need you to do just one part of the question very simple job and the part is x(1 + cumulative book value growth).There is a simple of the format which I attached and the file name is acc207 maybe wrong and that is the sample answer and from there you will see x(1+ cumlative book value growth).

4(b) Beginning book value Normal earning s Net income + beginning book value Equity value = PV factor 30 Year 200 60 35 2010 Year 235 70 40 2011 Year 275 80 75 2012 Cumulative PV of abnormal earnings Abnorm al earnings 0.952 4 0.907 0 0.863 8 35 30 PV OF ABNORM AL EARNING 28.572 31.745 25.914 86.231 + 200 286.231 4(a) Dividends Year 200 2010 Year 235 2011 Year 275 2012 Equity value PV factor 0.9524 PV of dividend s 23.81 0.9070 27.21 0.8638 133.889 184.909 4(c) Beginning book value Earnings ROE -Cost of capital =Abnormal ROE X (1 + CUMULATIVE BOOK VALUE GROWTH) =Abnormal ROE scaled by book value growth X PV factor 24-Jul-2014 Year 2010 200(million ) 60(million) 30% 5% 25% Year 2011 235(million ) 70(million) 29.78% 5% 24.78% Year 2012 275(million ) 80(million) 29.09% 5% 24.09% 1+.175 1+.145 1+(-.375) 29.375 28.37 15.05 0.9524 0.9070 0.8638 AXP Internal Page 1 of 2 4(b) = PV OF abnormal ROE scaled by book value growth Cumulated PV of Abnormal ROE SCALED BY BOOK VALUE GROWTH + 1.00 27.98 =equity value 25.73 13 67.71 66.71 67.71 -to-book multiple 24-Jul-2014 AXP Internal Page 2 of 2 1. Consider the following company that started business with $500 equity and goes into liquidation after three years. The cost of equity is 5%. Year 1 Year 2 Year 3 Beg book value 500 550 500 Net income 100 200 120 Calculate the equity value -to book multiple. Dividends 50 250 560 End book value 550 500 60