International Flavors and Fragrances, a leading creator and manufacturer of flavors and fragrances, paid out dividends of \($0.91\) per share on earnings per share of \($1.64\) in 1992. The firm was expected to have a return on equity of 20% between 1993 and 1997, after which the firm was expected to have stable growth of 6% a year. (The return on equity was expected to drop to 15% in the stable growth phase.) The dividend payout ratio was expected to remain at the current level from 1993 to 1997. The stock had a beta of 1.10, which was not expected to change. The Treasury bond rate was 7%, and the risk premium is 5.5%.

a. Estimate the PE ratio for International Flavors based on fundamentals.

b. Estimate how much of this PE ratio can be ascribed to the extraordinary growth in earnings that the firm expects to have between 1993 and 1997.