9.30 Equation 9.4 shows the relation between a stock's value and the dividend that is expected next year if dividends grow at a constant rate forever. If a firm pays all of its earnings as dividends, show how Equation 9.4 can be rearranged to calculate that firm's P/E ratio. What does this tell us about the factors that determine a firm's P/E ratio? 9.4 Dividend Yield: What is a dividend yield? What does it tell us? 9.4 Present value of Barrymore Infotech stock: g1 to g5=35%g6 and beyond =7% D0=D1=D2=0D3=$1.100D4=D3(1+g4)=$1.10(1+0.35)=$1.485D5=D4(1+g5)=$1.485(1+0.35)=$2.005D6=D5(1+96)=$2.005(1+0.07)=$2.145 Value of alock at t=5 PS=h21D2=h-10t1214=$21.45 Present value of the dividends in Years 1 to 5= PV (D1)+PV(D2)+PV(D2)+PV(D4)+PV(D3) =$0+$0+$0.60+$0.79+$0.91=$2.39 9.30 Equation 9.4 shows the relation between a stock's value and the dividend that is expected next year if dividends grow at a constant rate forever. If a firm pays all of its earnings as dividends, show how Equation 9.4 can be rearranged to calculate that firm's P/E ratio. What does this tell us about the factors that determine a firm's P/E ratio? 9.4 Dividend Yield: What is a dividend yield? What does it tell us? 9.4 Present value of Barrymore Infotech stock: g1 to g5=35%g6 and beyond =7% D0=D1=D2=0D3=$1.100D4=D3(1+g4)=$1.10(1+0.35)=$1.485D5=D4(1+g5)=$1.485(1+0.35)=$2.005D6=D5(1+96)=$2.005(1+0.07)=$2.145 Value of alock at t=5 PS=h21D2=h-10t1214=$21.45 Present value of the dividends in Years 1 to 5= PV (D1)+PV(D2)+PV(D2)+PV(D4)+PV(D3) =$0+$0+$0.60+$0.79+$0.91=$2.39