Answer Happy

(b) Edmond Berhad is a Software Company. It is a fast growing company. Assuming that the earnings is expected to grow for the next five years (year 2020 to year 2024), and assuming that after the end of the next five years the competition will have driven Edmond Berhad's abnormal returns down to zero. Edmond Berhad's cost of equity capital is estimated at 10 percent. After the analysis, the details of the prediction are shown below: Year Earnings Per Share Book Value Per Share (beginning-of-the financial year) 2019 0.66 10.62 2020 0.68 10.62 2021 2.60 10.60 2022 4.36 11.66 2023 5.12 12.68 2024 5.56 13.46 Note: Edmond Berhad's actual market-based Price-to-book (PB) ratio and Price-to-earnings (PE) ratio is 1.9 and 30 respectively. Required: (i) (ii) Determine Edmond Berhad's value per share now (end of year 2019), using the accounting-based equity valuation model to estimate. (15 marks) Calculate the PB ratio and PE ratio for Edmond Berhad using the results in (a). Justify whether the market is over-valued or under valued Edmond Berhad's shares. (5 marks) [Total: 30 marks)