. Analysts use various models for valuing companies.

(a) One method is to take a companys recent earnings and

assume they grow at a fixed rate. For this method give a

formula and explain how it is derived.

(b) Explain the limitations of the growth model used in (a).

(c) Analysts often talk about using P/E ratios to value stocks.

Why? Use your answers in parts (a) and (b).

(d) What are the limitations in using current and past

accounting information to compute earnings? Explain.