Harper National Corporation reported earnings per share of $2.40 in 2017 and paid dividends of $1.06 per share. You expect long-term earnings growth to be 3% per year, beginning this year. The stock has a beta of 1.12 and is trading for 11.15 times earnings. The Treasury rate is 3% and the market risk premium is 5.5%. a. Estimate the PE ratio for Harper National Corporation. b. What long-term growth rate is implied by the PE ratio at which the firm currently trades? Is this a sustainable long-term growth rate? Why or why not?

How to get the answers?

ANSWERS:

a. PE ratio=7.39

b. Long-term growth rate = 5%