2. The Hall Dental Supply Company sells at $32 per share, and Randy Hall, the CEO of this well-known Research Triangle firm, estimates the latest 12-month earnings are $4 per share with a dividend payout of 50%. Hall's earnings estimates are very accurate.
a. What is Hall's current P/E ratio?
b. If an investor expects earnings to grow by 10% a year, what is the projected price for next year if the P/E ratio remains unchanged?
c. Ray Parker, President of Hall Dental Supply Company, analyzes the data and estimates that the payout ratio will remain the same. Assume the expected growth rate of dividends is 10% and an investor has a required rate of return of 16%. Explain whether or not this stock would be a good buy and support your rationale.
d. If interest rates are expected to decline, discuss the likely effect on Hall's P/E ratio.