Knurrvig Company reported earnings per share of $2,40 in 2007 and paid dividends per share of $1,06. The earnings had grown 7,5% a year over the prior five years and were expected to grow 6% a year in the long term (starting in 2008). The stock had a beta of 1,05 and traded for ten times earnings. The treasury bond rate was 7%.
a. Estimate the PE Ratio for Knurrvig Corporation.
b. What long term growth rate is implied in the firm's current PE ratio?