Question: Shaar (from the previous problem) has revised slightly her estimated earnings growth rate for Rio National and, using normalized (underlying) EPS, which is adjusted for

Shaar (from the previous problem) has revised slightly her estimated earnings growth rate for Rio National and, using normalized (underlying) EPS, which is adjusted for temporary impacts on earnings, now wants to compare the current value of Rio National€™s equity to that of the industry, on a growth-adjusted basis. Selected information about Rio National and the industry is given in Table.
Compared to the industry, is Rio National€™s equity overvalued or undervalued on a P/E-to growth (PEG) basis, using normalized (underlying) earnings per share? Assume that the risk of Rio National is similar to the risk of theindustry.

Rio National 11.00% $25.00 Estimated earnings growth rate Current share price Normalized (underlying) EPS for 2008 Weighted-average shares outstanding during 2008 16,000,000 Industry Estimated earnings growth rate Median price/earnings (P/E) ratio 12.00% 19.90

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