Section C (4 Mark)
National City Corporation, a bank holding company, reported earnings per share of Rs2.40 in 1993, and paid dividends per share of Rs1.06. 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 1994). The stock had a beta of 1.05 and traded for ten times earnings. The treasury bond rate was 7%.
Estimate the P/E Ratio for National City Corporation and the long term growth rate that is implied in the firm's current P/E ratio.