Explanation

The justified leading P/E ratio can be calculated using the Gordon growth model:

$\frac{P_0}{E_1} = \frac{D_1/E_1}{r - g}$

Where:

• $r$ = required return on equity = 10.3% = 0.103
• $g$ = dividend growth rate = 5.2% = 0.052
• $D_0$ = current dividend = $1.00
• $E_0$ = trailing EPS = $2.50

First, calculate $D_1$: $D_1 = D_0 \times (1 + g) = 1.00 \times 1.052 = 1.052$

Next, calculate $E_1$: $E_1 = E_0 \times (1 + g) = 2.50 \times 1.052 = 2.63$

Now calculate the payout ratio: $\frac{D_1}{E_1} = \frac{1.052}{2.63} = 0.40$

Finally, calculate the justified leading P/E: $\frac{P_0}{E_1} = \frac{0.40}{0.103 - 0.052} = \frac{0.40}{0.051} = 7.84$

The justified leading P/E ratio is closest to 7.8, which corresponds to option A.

Answer: A