Building on the regression equation estimated in the previous question. $\frac{P}{E}=18\mathrm{.}69+0\mathrm{.}0695$ GROWTH $-0\mathrm{.}5082$ BETA $-0\mathrm{.}4262$ PAYOUT.

The twist here is to estimate P$/$E for a private firm you are trying to value. It has the following characteristics:

The firm had net profits of $$10$ million. It can distribute what is left of NI after depreciation allowances of $$5$ million, and capital expenditures of $$12$ million, in the most recent year. Working capital requirements were negligible.

The earnings had grown $25\%$ over the previous five years, and are expected to grow at the same rate over the next five years.

The average beta of publicly traded firms, in the same line of business, is $1\mathrm{.}15,$ and the average debt$/$equity ratio of these firms is $25\%.($The tax rate is $40\%.)$ The private firm is an all$-$equity financed firm, with no debt.

$($Hint$.$ Assemble the inputs and plug into the equation. Expected Growth Rate $-$ given. Beta $-$ since you have to use industry beta and the firm has no debt $-$ its beta would be unlevered industry beta. Dividend: estimate FCFE as a potential dividend and use FCFE$/$NI$.)$

$20\mathrm{.}59$

$18\mathrm{.}07$

$23\mathrm{.}71$

$25\mathrm{.}63$