Question 2 A hedge fund manager is valuing Company Ul which has the following expected key financial measures for year-end 2021 (Table 2): Table 2 Enterprise value 40,000 Level of cash 3,200 Level of interest bearing debt 9,500 Minority interest 750 Financial Investments 1,350 Number of equity shares 2,750 2021 Book value per Share (BVPS) 10.80 Additionally, the hedge fund manager has the following information about a set of comparable listed companies that are similar both in terms of leverage and also in terms of other fundamentals (Table 3): Company Table 3 current market price BVPS 2021 () B D per share () 2.0 1.7 1.8 1.5 0.8 1.1 For your answers, round computations to one decimal place (e.g. present 1.56 as 1.6). a. What is the 2021 price/book-value (PBV) multiple of company UI implied in the asset manager's expectations? Explain your answer. [10 marks] b. Consider only the information on the 2021 PBV multiple of the set of comparable companies. What is the conclusion about the relative valuation of company UI? Explain your answer. [10 marks] c. Why is the expected return on equity a relevant fundamental variable to take into account when using the PBV multiple? Explain your answer. [5 marks]