Problem 1: Relative valuation based on forecasted fundamentals (15 points) Assume that the Gordon model (constant non-zero growth rate of dividends forever) applies to stock JBS. The current dividend is De = $2 and the forecasted growth rate of dividends is g = 5%. The trailing earnings over the past twelve months are Eo = $3 per share The estimated market capitalization rate cost of equity) is 12%. Assume that the current stock price is $25 per share Based on the Gordon DDM (dividend discount model), write the expression for the justified trailing price-earnings ratio that is, the trailing P/E ratio based on forecasted fundamentals. rel 3 shore $25 per 31 5 8.12 -3 b) Calculate the justified trailing price-earnings ratio for JBS. 120 = 368. 4 - 4 3 at c) If the actual trailing P/E ratio for JBS is 18, determine whether JBS's stock is over(under)valued on a trailing P/E basis. over valued stock JBS's