Business, 23.06.2020 23:01 Kaycieb

Assume theâ€‹ following: bullettheâ€‹ investor's required rate of return is 18 â€‹percent, bulletthe expected level of earnings at the end of this year â€‹(Upper E 1â€‹) is â€‹$10â€‹, bulletthe retention ratio is 55 â€‹percent, bullet the return on equity â€‹(ROEâ€‹) is 18 percentâ€‹ (that is, it can earn 18 percent on reinvestedâ€‹ earnings), and bulletsimilar shares of stock sell at multiples of 5.556 times earnings per share. A. Determine the expected growth rate for dividends. B. Determine the price earnings ratioâ€‹(Pâ€‹/Upper E 1â€‹). C. What is the stock price using theâ€‹ P/E ratio valuationâ€‹ method?D. What is the stock price using the dividend discountâ€‹ model?E. What would happen to the â€‹P/E ratio â€‹(Pâ€‹/Upper E 1â€‹) and stock price if the firm could earn 25 percent on reinvested earnings â€‹(ROEâ€‹)? F. What does this tell you about the relationship between the rate the firm can earn on reinvested earnings and â€‹P/Eâ€‹ ratios?

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Assume theâ€‹ following: bullettheâ€‹ investor's required rate of return is 18 â€‹percent, bulletthe...

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