The following are earnings and dividend forecasts made at the end of 2008. The firm has a

Question:

The following are earnings and forecasts made at the end of 2008. The firm has a required equity return of 10 percent per year.

The following are earnings and dividend forecasts made at the end

a. Forecast the ex-dividend earnings growth rate and the cum-dividend earnings growth rate for 2010 and 2011.
b. Forecast abnormal earnings growth for 2010 and 2011.
c. Calculate the normal forward P/E for this firm.
d. Based on your forecasts, do you think this firm will have a forward P/E greater than its nonna1 P/E?Why?

Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...