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Question: Forecasting Earnings Growth and Abnormal Earnings Growth (Easy) The following are earnings and dividend forecasts made at the end of2010. The firm has a required equity return of 10 percent per year.

a. Forecast the ex-dividend earnings growth rate and the cum-dividend earnings growth rate for 2012 and 2013.

b. Forecast abnormal earnings growth (in dollars) for 2012 and 2013.

c. Calculate the normal forward PIE for this firm.

d. Based on your forecasts, do you think this firm will have a forward PIE greater than its normal PIE? Why?

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