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Based on the following information on a hypothetical company, perform an equity evaluation using residual earnings (RE) model. You should also make an investment recommendation based on your work. Current market price per share AU$ 18.00 Current P/B ratio 1.5 Company’s market beta 0.8 Australian average risk-free rate 2.5% Australian average share market return 9% Company’s sustainable long-term growth rate after 5 years 3% Company’s cost of capital 8% Company’s dividend payout ratio 40% Forecasted ROCE for the next 5 years 15%, 14%, 13%, 12%, 11%
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