Suppose that a company is currently selling for $26 per share, with trailing 12-month EPS and dividend per share of $1.2 and $0.24, respectively. The companys P/E is 21.66, P/B is 0.3, and P/S is 2.95.

The ROE is 6%, and the profit margin on sales is 15%. You have estimated that the beta for the company is 1.1, the risk-free return is 3%, and the market risk premium is 4.5%.

Questions:

What are the company's dividend payout ratio, sustainable growth rate, and return on equity? (1.5 Mark)

What are the company's justified trailing P/E, P/B, and P/S ratios? (3 Marks)

Based on your calculations in question 2, discuss whether the company is being undervalued/overvalued/fair valued (1.5 Marks).

What is the new theoretical price given the companys justified trailing P/E ratio? By how much is the company being overvalued/undervalued? (1 Mark)