In March 2005, analysts were forecasting consensus earnings per share for Kimberly Clark (KMB) of $3.81 for fiscal year ending December 31, 2005, and $4.14 for 2006, up from $3.64 for 2004. KMB traded at $64.81 per share at the time. The firm paid a dividend of $1.60 in 2004 and a dividend of $1.80 was indicated for 2005, with dividends growing at 9 percent a year for the five years thereafter. Use a required return of 8.9 percent for the following calculations.

a. Calculate the trailing and forward P/E ratio at which KMB traded in March 2005. Also calculate the normal trailing and forward P/E for KMB.

b. Calculate the market's implied growth rate for abnormal earnings growth (AEG) after 2006.

c. What are the earnings-per-share growth rates that the market was forecasting for the years 2007-2010?

d. Analysts were forecasting an EPS growth rate of 8.0 percent per year over these years. What do you conclude from the comparison of these growth rates with those you calculated in part (c) of the exercise?

e. Analyst average buy/hold/sell recommendation, on a scale of 1 to 5 (with 5 being a strong buy), was 2.6. Is this rating supported by their forecasts?