An analyst gathered the following data for the Parker Corp. for the year ended December 31, 2008:
EPS2008=$1.75
Dividends2008=$1.40
Betaparker=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. 7.98.
B. 9.14.
C. 7.60.