n the most recent financial year, Finsa Co. reported earnings before interest and tax of $250 million, interest payments of $35 million and equity book value of $650 million. It paid out 80% of its earnings as dividends and expected to grow at 4%. It is currently traded at a price 5 times of the book value per share. Finsa Co. has a tax rate of 30% and cost of equity of 12%.

a) Estimate the fundamental P/B Ratio for Finsa Co.

b) What is the implied ROE in the firm's currently traded P/B ratio?

c) Given Finsa Co.s current P/B of 5, the median P/B of 3 from Finsas comparable firms, and the fundamental P/B computed from part a), explain whether the stock is over-valued or under- valued?