Christie Johnson, CFA, has been assigned to analyze Sundanci using the constant-dividendgrowth price/earnings (P/E) ratio model. Johnson assumes that Sundanci’s earnings and dividends will grow at a constant rate of 13%.

a. Calculate the P/E ratio based on information in Tables 13.11 and 13.12 and on Johnson’s assumptions for Sundanci.

b. Identify, within the context of the constant dividend growth model, how each of the following factors would affect the P/E ratio.

Risk (beta) of Sundanci.

Estimated growth rate of earnings and dividends.

Market risk premium. LO.1