a) Firm A has systematic risk beta and ROE (return on equity) equal 0.8 and 7% respectively. The risk-free rate is 3% and the market risk premium is 6%. If firm A's next year EPS (earnings per share)...

a) Firm A has systematic risk beta and ROE (return on equity) equal 0.8 and 7% respectively. The risk-free rate is 3% and the market risk premium is 6%. If firm A's next year EPS (earnings per share) and DPS (dividend per share) are £0.5 and £0.2 respectively, what is the firm's expected price-earnings multiple? How much dividend should the firm declare if it is to enjoy a higher expected PE (price-to-earnings) valuation? b) What are the pros and cons of the PE approach to valuation?