If the

expected earnings per share: $20

market beta: 0.8

earnings per share to be retained by the firm: 30%

growth rate in earnings per share: 7% p.a.

1. What is the price to earnings ratio if the expected return on the ASX300 is 12% p.a. and the return on 10 year Commonwealth Government Bonds is 4% p.a. What does this ratio tell you?

2. Calculate the share price using P/E ratio answered from the above question.