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Consider the following Earnings forecasts made at the end of 2020. Assume the discount rate is 10% for this firm. 2021 2022 2023 Earnings Per

Consider the following Earnings forecasts made at the end of 2020. Assume the discount rate is 10% for this firm.

2021 2022 2023

Earnings Per Share (EPS) 3.00 3.60 4.10

Dividend Per Share (DPS) .25 .25 .30

1. Calculate the Normal forward P/E ratio for this firm (i.e., the P/E ratio assuming perfect income statement)

2. Calculate the forecasted EPS year-over-year growth rate (in %) for Year 2022 and Year 2023

3. Based on the forecasted EPS growth rate, do you think the firm would have an actual forward P/E ratio greater or less than the Normal forward P/E ratio? Why?

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