The current share price of Potato plc is 205p. It recently reported earnings per share of 14p and Potato has a policy of paying out 50% of earnings in dividends each year. The earnings history of Potato is as follows: Earnings per share Last reported 14p One year ago 13p Two years ago 12p Three years ago 11p Four years ago 10p Five years ago 9p The rate of growth in earnings and dividends shown in the past is expected to continue into the future. The risk-free rate of return is 6.5% and the equity risk premium is 5%. Potato has greater systematic risk than the average share, therefore the risk premium needs to be adjusted by a beta of 1.2. Question 5 a) What is the historical price-to-earnings ratio (PER)? [2 marks] Question 5 b) What is the future growth rate of dividends and earnings? [2 marks] Question 5 c) The required rate of return on a share of this risk class is calculated as 12.5% using CAPM. Find the prospective PER using the more complete PER model.