Manchester Ltd (ML) integrates artificial intelligence and machine learning to create solutions for health and home-care services. Its stated mission is to empower people of all walks to have great access to healthcare and to live their healthiest lives. ML is listed on the stock exchange of Tech City and is classified in the Healthcare Equipment and Supplies Industry. The industry has an unlevered beta of 0.75. In Tech City, the historical risk-free rate is 2%, the equity risk premium is 5%, and the corporate tax rate is 20%. Surrey Co also operates in Tech City and competes in the same industry as ML. As part of its expansion plans, ML is negotiating with the management of SC to consider a possible acquisition to consolidate and strengthen its market position. The management of SC provided a forecast of revenue and earnings per share (with nil dividend) as shown in the table below. The book value of equity for SC Corp on December 31, 20x1 was $20 million with 1 million shares outstanding. The firm's debt-equity ratio is 0.2. Sales revenue ($mil) Earnings per share ($) 20x2 30 2.50 20x3 38 3.50 20x4 50 5.00 ML intends to maintain the debt-equity ratio of 0.2 and the management of ML (based on their understanding of the industry) projects a 1% growth rate of abnormal earnings for 20x5 and beyond. Required (a) Calculate SC's estimated abnormal earnings for each of the years from Year 20x2 to Year 20x4. Using the abnormal earnings valuation model and the end-of-period discounting approach, estimate the intrinsic value of the firm's stock as at December 31, 20x1. (12 marks)

Manchester Ltd (ML) integrates artificial intelligence and machine learning to create solutions for health and home-care services. Its stated mission is to empower people of all walks to have great access to healthcare and to live their healthiest lives. ML is listed on the stock exchange of Tech City and is classified in the Healthcare Equipment and Supplies Industry. The industry has an unlevered beta of 0.75 . In Tech City, the historical risk-free rate is 2%, the equity risk premium is 5%, and the corporate tax rate is 20%. Surrey Co also operates in Tech City and competes in the same industry as ML. As part of its expansion plans, ML is negotiating with the management of SC to consider a possible acquisition to consolidate and strengthen its market position. The management of SC provided a forecast of revenue and earnings per share (with nil dividend) as shown in the table below. The book value of equity for SC Corp on December 31,20x1 was $20 million with 1 million shares outstanding. The firm's debt-equity ratio is 0.2 . ML intends to maintain the debt-equity ratio of 0.2 and the management of ML (based on their understanding of the industry) projects a 1% growth rate of abnormal earnings for 205 and beyond. Required (a) Calculate SC's estimated abnormal earnings for each of the years from Year 202 to Year 204. Using the abnormal earnings valuation model and the end-of-period discounting approach, estimate the intrinsic value of the firm's stock as at December 31,201