Dr Nii Quarshie, an investment analysis wants to use the Gordon growth model to find a justified P/E for a Ghanaian listed firm known as CA, a global food retailer specializing in hypermarkets and...

Dr Nii Quarshie, an investment analysis wants to use the Gordon growth model to find a justified P/E for a Ghanaian listed firm known as CA, a global food retailer specializing in hypermarkets and supermarkets. Dr Nii Quarshie has assembled the following information: Current stock price = GH¢ 47.46, Trailing annual earnings per share = GH¢ 3.22, Current level of annual dividends= GH¢ 1.03, Dividend growth rate= 7%. Risk-free rate = 4.4%, Equity risk premium= 6.39%, Beta=0.72

Required:

1. Calculate the justified trailing and leading P/Es based on the Gordon growth model.

2.Based on the justified trailing P/E and the actual P/E, explain whether CA is fairly valued, overvalued or undervalue.