An analyst gathered the following data for the Parker Corp. for the year ended December 31, 2005:
EPS2005 = $1.75
Dividends2005 = $1.40
Beta Parker = 1.17
Long-term bond rate = 6.75%
Rate of return S&P500 = 12.00%
The firm has changed its dividend policy and now plans to pay out 60% of its earnings as dividends in the future. If the long-term growth rate in earnings and dividends is expected to be 5%, the appropriate price to earnings (P/E) ratio for Parker will be: A. 9.14. B. 7.98. C. 7.60.
