a Find the price at which Analog stock should sell.

rf 6% rf 6%
1.5 1.5
rM 13% rM 13%
PB ratio (b) 2/3 PB ratio (b) 1/3
ROE 8% ROE 8%
EPS 3 EPS 3

k = r f + [ (r M ) r f ]
k 17% k 17%
g 5% g 3%

D = E (1 + g) (1 b)
D 1.05 D 2.05

P = D / k-g
P 9.43 P 14.84

b Price Earning Ratio V 0 increases because the firm pays

out more earnings instead of
reinvesting a poor ROE. This
Trailing P/E 3.14 information is not yet known to the
rest of the market.
EPS 1 3.16

Leading P/E 2.99

c PVGO P - E1 / k
(9.72)