The question asks us to find the P/E ratio, but they don't give us this year's earnings (although we can figure out the current price based on the info given). Am I missing something?

Jacob: One candidate states that the earnings per share in time t+1 is the earnings per share in time t multiplied by the dividend growth rate: EPS(t+1) = EPS(t) × (1 + g). Another candidate asks if this is always true.

Rachel: The dividend is the earnings per share times the payout ratio. The formula is correct as long as the payout ratio does not change.

Jacob: Does the payout ratio normally change over time?

Rachel: As firms mature, the payout ratio normally increases. Brealey and Myers have a section on estimating firm values with a changing payout ratio, but that section is not on the syllabus for this course.