Question
a. Consider the following scenario and complete the last column! b. What is the sensitivity of the price-earnings ratio to changes in the cost of
a. Consider the following scenario and complete the last column!
b. What is the sensitivity of the price-earnings ratio to changes in the cost of equity capital and changes in the growth rate?
Table 9
Estimating price earning(P/E) ratios under various scenarios
| Scenario | Cost of Equity Capital | Growth Rate in Earnings | P/E Ratio |
| 1 | 0.13 | 0.09 | |
| 2 | 0.13 | 0.11 | |
| 3 | 0.15 | 0.09 | |
| 4 | 0.18 | 0.09 | |
| 5 | 0.18 | 0.11 |
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Handbook Of The Economics Of Finance
Authors: George M. Constantinides, Milton Harris, Rene M. Stulz
1st Edition
044459406X, 978-0444594068
