A share of Maytag Corp., another appliance manufacturer, traded at $28.80 in January 2003. Analysts were forecasting earnings per share of $2.94 for 2003 and $3.03 for 2004, with dividends per share of 72 cents indicated for 2003. Analysts' 3-5 year growth rate for earnings per share after 2004 was 3.1 percent.

a. Calculate the normal forward P/E ratio for Maytag if its equity cost of capital is 10 percent. Compare the normal P/E to the actual traded P/E at the time.

b. Do the forecasts of earnings after 2003 indicate that the traded P/E is the appropriate pricing for the firm's shares?