Question 2. You are asked to value the equity of Summons Inc using various techniques, including the dividend discount model (DDM), the residual income model at equity level (RIVM) and the abnormal earnings growth model (AEG), as well as the P/E multiple. You have collected the following information: Current book value is $60 per share. The forecast earnings per share (EPS): Year 1, $6.0; Year 2, $ 6.24 The company has a constant dividend payout ratio of 60%. For year 3 and beyond, the forecast growth in book value and earnings will be 4%. The firm has a beta of 0.9, the risk free rate is 2% and the market risk premium is 5%. REQUIRED: (a) Project residual income and book values for years 1-3, and abnormal earnings growth (AEG) for years 2-3. (25 marks) (b) Calculate the value of Summons Inc. using the DDM, Residual Income Value and AEG models at the beginning of Year 1 and Year 2. (40 marks) (c) Calculate the sustainable growth rate and value of Summons Inc. using the P/E approach at the beginning of Year 2. (15 marks) (d) Compare and contrast the DDM, RIVM and AEG models. Comment on your results above. (20 marks) [Total 100 marks] Question 2. You are asked to value the equity of Summons Inc using various techniques, including the dividend discount model (DDM), the residual income model at equity level (RIVM) and the abnormal earnings growth model (AEG), as well as the P/E multiple. You have collected the following information: Current book value is $60 per share. The forecast earnings per share (EPS): Year 1, $6.0; Year 2, $ 6.24 The company has a constant dividend payout ratio of 60%. For year 3 and beyond, the forecast growth in book value and earnings will be 4%. The firm has a beta of 0.9, the risk free rate is 2% and the market risk premium is 5%. REQUIRED: (a) Project residual income and book values for years 1-3, and abnormal earnings growth (AEG) for years 2-3. (25 marks) (b) Calculate the value of Summons Inc. using the DDM, Residual Income Value and AEG models at the beginning of Year 1 and Year 2. (40 marks) (c) Calculate the sustainable growth rate and value of Summons Inc. using the P/E approach at the beginning of Year 2. (15 marks) (d) Compare and contrast the DDM, RIVM and AEG models. Comment on your results above. (20 marks) [Total 100 marks]