Answer Happy

c) You have been tasked to find the value for Towel Co using aresidual earningsvaluation model. To help Colm understand the process better, youhavedecided to write him a short memo outlining the following:
i) What is meant by residual earningsii) The additional information you would require to undertake theresidualearnings valuationiii) The steps that you would need to take to carry out thisvaluation. Thisshould include a worked example of the calculation, using numbersthatyou have assumed yourself based on your answer in part c(ii).
Question 1 Towel Co is a clothing retailer with an international market for its goods. You are a manager at Towel Co and you have been provided with the following information about the company for the financial year ending 31/12/2021. Earnings (£m) Net Assets (£m) 295 9.8 P/E Multiple P/B Multiple Your intern, Colm, has provided you with the following memo with a valuation of Towel Co by comparing it with Flannel Co, a competing firm. I've calculated the value of Towel Co to be £19.85, based on the following information. I obtained the earnings, book value and market values of a competing firm, Flannel Co and did the following calculations: Flannel Towel Flannel 5.75 0.38764 Earnings 12 9.8 Book Value 178 295 Towel 2.27907 Outstanding Shares (m) 68.60465 Market Value 69 ? P/E 5.75 4.3 Value 13.10465 26.59394 19.84929 P/B 0.38764