PROBLEMS 4.1Consider the following data: End of Year (million $) 5 6 810 Profit after taxes Free cash tlow Continuation value of equity 120 Stockholders' required return on equity 17%. a. What is the value of equity as of the beginning of year 1? What is the P/E multiple with respect to year I earnings implied by your valuation? What is the P/E multiple with respect to year 5 earnings assumed in the estimation of continuation value? Explain the difference between the initial and the terminal multiples. Are they comparable b. What is the growth rate of profit after taxes assumed for year 6 and beyond? State the assumptions needed in order to answer this question. Estimate the P/E multiple with respect to year 6 earnings 4.2 Sometimes, it is claimed that stocks are fairly priced when earnings yields equal the yield on high-grade corporate bonds. The earnings yield is defined as per share profits divided by Compare this rule of thumb with the earnings yields implied by the dividend-growh model PROBLEMS 4.1Consider the following data: End of Year (million $) 5 6 810 Profit after taxes Free cash tlow Continuation value of equity 120 Stockholders' required return on equity 17%. a. What is the value of equity as of the beginning of year 1? What is the P/E multiple with respect to year I earnings implied by your valuation? What is the P/E multiple with respect to year 5 earnings assumed in the estimation of continuation value? Explain the difference between the initial and the terminal multiples. Are they comparable b. What is the growth rate of profit after taxes assumed for year 6 and beyond? State the assumptions needed in order to answer this question. Estimate the P/E multiple with respect to year 6 earnings 4.2 Sometimes, it is claimed that stocks are fairly priced when earnings yields equal the yield on high-grade corporate bonds. The earnings yield is defined as per share profits divided by Compare this rule of thumb with the earnings yields implied by the dividend-growh model