Suppose that PowerWind Co., a renewable energy startup, currently has earnings of $4 per share and that Alyssa anticipates the earnings per share to grow by 6 percent per year. Using a mean industry PE ratio of 13 and the expected annual growth rate on the firms existing earnings, the estimated stock price in three years is:

$56.36

$61.93

$63.79

$66.88

Suppose PowerWind Co. is expected to pay a dividend of $5 per share over the next three years, that Alyssas required rate of return is 12 percent, and that she plans to sell the stock at the end of the three-year time period. Under these circumstances, using the adjusted dividend discount model, the value of the stock today is:

$47.68 per share

$56.09 per share

$57.77 per share

$60.02 per share

Which of the following are limitations to the price-earnings model? Check all that apply.

It can result in inaccurate valuations when investors rely on an industry price-earnings ratio that uses a collection of firms that is too narrow, when additional competitors could have also been used.

The required rate of return by investors is incorrectly estimated.

It assumes that the dividend growth rate will never be higher than the required rate of return.

It can result in inaccurate valuations when investors rely on an industry price-earnings ratio that uses a collection of firms that is too broad, when a smaller, more representative collection of firms could have been used.