Company XYZ Inc just release its annual report. The company reported the following: Sales $100m; Net Income=$20m; Dividends paid=$10m Number of outstanding common shares 50m The company is in a steady state (i.e. constant long term growth) and the earnings and dividends of the company are expected to grow at 2% in the long run. The stock is currently trading at $5 per share. You also know that the beta of the stock is 1.1, the yield on a 10-year T-note is 2% and the ERP is 4.8%. The stock is currently traded at a P/E ratio of 5.

1. (0.5 points)Estimate the P/E ratio. Assume constant growth.

2. (0.5 points)What is the long term growth implied by the current price?

3. (0.5 points)Estimate the P/Sales ratio. Assume constant growth.

4. (0.5 points)Assuming that the long term growth is estimated correctly, what profit margin would justify the current price?