Question
A firm that pays out 65% of its earnings as dividends has an accounting rate of return of 20%. Its P/E ratio is 10 and
A firm that pays out 65% of its earnings as dividends has an accounting rate of return of 20%. Its P/E ratio is 10 and its earnings per share is 108 cents.
(i) What is the price per share?
(ii) What is the dividend yield?
(iii) If shares were bought, what would be the payback period? Assume the only return is the dividend.
(iv) What is the net book value per share of the asset investment of the company?
(v) If the risk-adjusted required rate of return is 6%, what would be the NPV per share for buying shares?
(vi) Would you buy shares using AROR or NPV?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started