The following are earnings and dividend forecasts made at the end of 2010. The firm has a

Question:

The following are earnings and dividend forecasts made at the end of 2010. The firm has a required equity return of 10 percent per year.

2012 2013 2011 3.60 0.25 EPS 4.10 0.30 3.00 0.25 DPS

a. Forecast the ex-dividend earnings growth rate and the cum-dividend earnings growth rate for 2012 and 2013.
b. Forecast abnormal earnings growth (in dollars) for 2012 and 2013.
c. Calculate the normal forward PIE for this firm.
d. Based on your forecasts, do you think this firm will have a forward PIE greater than its normal PIE? 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...