Regression PE

A firm has a retention ratio of $40$ percent of earnings and P$/$E ratio of $13.$ Its earnings growth

has been $5$ percent annually for the last three years and will likely continue for five more years

at that rate. Its standard deviation of earnings growth has been $3\mathrm{.}7$ percent. An analyst

attempting to value the company using cross$-$sectional regression has determined an equation

of:

widehat$(PE)=13\mathrm{.}7+3\mathrm{.}8DPR+4\mathrm{.}7$EGR$+3\mathrm{.}2{}_{\text{E}\text{G}\text{R}}$

In the equation, DPR is the dividend payout rate, EGR is the earnings growth rate, and ${}_{\text{E}\text{G}\text{R}}$ is

the standard deviation of the earnings growth rate. Using the regression equation:

a$.$ What is the forward $\frac{P}{E}$ forecast

Round your answer to one decimal

b$.$ How the stock is valued on a relative basis $($choose the correct one$)$: