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( Common stock valuation ) Assume the following: the investor's required rate of return is 1 3 . 5 percent, the expected level of earnings
Common stock valuation Assume the following: the investor's required rate of return is percent, the expected level of earnings at the end of this year is $ the retention ratio is percent, the return on equity ROE is percent that is it can earn percent on reinvested earnings and similar shares of stock sell at multiples of times earnings per share. Questions: a Determine the expected growth rate for dividends. b Determine the price earnings ratio c What is the stock price using the PE ratio valuation method? d What is the stock price using the dividend discount model? e What would happen to the ratio and stock price if the company increased its retention rate to percent holding all else constant What would happen to the PE ratio and stock price if the company paid out all its earnings in the form of dividends? f What have you learned about the relationship between the retention rate and the PE ratios?
Common stock valuation Assume the following:
the investor's required rate of return is percent,
the expected level of earnings at the end of this year is $
the retention ratio is percent,
the return on equity ROE is percent that is it can earn percent on reinvested earnings and
similar shares of stock sell at multiples of times earnings per share.
Questions:
a Determine the expected growth rate for dividends.
b Determine the price earnings ratio
c What is the stock price using the PE ratio valuation method?
d What is the stock price using the dividend discount model?
e What would happen to the ratio and stock price if the company increased its retention rate to percent holding all else constant What would happen to the PE ratio and stock price if the company paid out all its earnings in the form of dividends?
f What have you learned about the relationship between the retention rate and the PE ratios?
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