So I was going through my calculations and I was off by a little for part (a) and part (b). The document attach to this question should be my work if you could go over it and see what I did wrong and explain it to me that would be great.

Financial Statement Analysis, Eleventh Edition

CHECK: (a) $7,205 and(d) $8,644

Required:

a. Abnormal earnings are expected to be $0 per year after Year 7. Use the accounting-based equity valuation model to estimate Colin?s value at the beginning of Year 1.

b. Determine Colin?s PB ratio using the results in (a). Colin?s actual market-based PB ratio is 1.95. What do you conclude from this PB comparison?

c. Determine Colin?s PE ratio using the results in (a). Colin?s actual market-based PE ratio is 10. What do you conclude from this PE comparison?

d. If we expect Colin?s sales and profit margin to remain unchanged after Year 7 with a stable book value of $8,506, use the accounting-based equity valuation model to estimate Colin?s value at the beginning of Year 1

Colin Technology?s cost of equity capital is estimated at 13%

Case 11-3 p. 648 Check: (a) $7,205 and (b) $8,644 (a) Net income Book value Net income/Book Value= ROCE Y1 1034 5308 19.48% Y2 1130 5292 21.35% Y3 1218 5834 20.88% Y4 1256 6338 19.82% Y6 1404 7266 19.32% Y7 1546 7856 19.68% Colin Technology's Value of equity = (b) PB ratio= Book Value of equity PB ratio= Actual PB ratio Evaluation: (c) PE ratio= Net income PE ratio= Actual PE ratio Evaluation: 5308+ ( 21.35%-13%) x 5292 + ( 20.88%-13%) x 5834 + ( 19.82%-13%) x 6338 + ( 19.00%-13%) x 6728 + ( 19.32%-13%) x 7266 + ( 19.68%-13%) x 7856 +0 1.13 1.13^2 1.13^3 1.13^4 1.13^5 1.13^6 1.13^7 304.4 Colin Technology's Value of equity = (19.48%-13%)x 5308 + Y5 1278 6728 19.00% 346.1 318.6 265.1 219.1 220.6 223.6 ( 19.82%-13%) x 6338 + 1.13^4 265.1 ( 19.00%-13%) x 6728 + 1.13^5 219.1 ( 19.32%-13%) x 7266 + 1.13^6 220.6 5308 + 304.4 + 346.1 + 318.6 + 265.1 + 219.1 + 220.6 + 223.6 + 0= Y1 7,277.50 5308 1.37 Y2 7,277.50 5292 1.38 1.95 Y3 Y4 7,277.50 7,277.50 5834 6338 1.25 1.15 1.95 1.95 1.95 $ 7,277.50 Y5 Y6 7,277.50 7,277.50 6728 7266 1.08 1.00 1.95 Y7 7,277.50 7856 0.93 1.95 1.95 As the future ROCE an/or growth in book value increases, the PB ratio increases. Also as the cost (risk) of equity capital increases, the PB ratio decreases. In our case, the book value increases and decreases through the years. One will see a decrease in Y1 to Y2 and an increase in the years afterwars. The decrease in book value casued the PB ratio to increase from Y1 to Y2. However, in the years after the book value was increasing slowly causing the PB ratio to decrease. Now all of the calculated PB ratios did not meet up to the actual PB ratio of 1.95. The actual PB ratio of 1.95 indicates that the expects future residual earnings. However, in Y7 it indicates future negative residual earnings. Y1 7,277.50 1034 7.04 Y2 7,277.50 1130 6.44 10 Y3 Y4 7,277.50 7,277.50 1218 1256 5.97 5.79 10 10 10 Y5 Y6 7,277.50 7,277.50 1278 1404 5.69 5.18 10 Y7 7,277.50 1546 4.71 10 10 The PE ratio describes the rate at which the EPS is expected to increase relative to normal expected growth. Now in our calculations, as the the cost of captial increaes, the PE ratio is lowering at a decreasing rate. None of the ratios met up with the actual PE ratio of 10. (d) If we expect Colin's sales and profit margin to remain unchanged after Y7 with a stable book value of $8506: Colin Technology's Value of equity = Colin Technology's Value of equity = 5308+ (19.48%-13%)x 5308 + 1.13 304.4 ( 21.35%-13%) x 5292 + 1.13^2 346.1 5308 + 304.4 + 346.1 + 318.6 + 265.1 + 219.1 + 220.6 + 223.6 + 8506 = ( 20.88%-13%) x 5834 + 1.13^3 318.6 $15,783.5 ( 19.68%-13%) x 7856 + 8506 1.13^7 223.6