(Common stock valuation) Assume the following: the investor's required rate of return is 14.5 percent, the expected level of earnings at the end of this year (E) is $12, the retention ratio is 50 percent . the retum on equity (ROE) Is 15 percent (that is, it can earn 15 percent on reinvested earnings), and similar shares of stock sell at multiples of 7.143 times earnings per share Questions a. Determine the expected growth rate for dividonds. b. Determine the price earnings ratio (PE) c. What is the stock price using the P/E ratio valuation method? d. What is the stock price using the dividend discount model? e. What would happen to the P/E ratio (PE) and stock price if the company increased its retention rate to 75 percent (holding all else constant)? What would happen to the P/E ratio (PE) and stock price if the company paid out all its earnings in the form of dividends? 1. What have you learned about the relationship between the retention rate and the P/E ratios? the following a. What is the expected growth rate for dividends? 1% (Round to two decimal places) b. What is the price earnings ratio (PIE? (Round to three decimal places.) c. What is the stock price using the PlE ratio valuation method? (Round to the nearest cont.) d. What is the stock price using the dividend discount model? (Round to the nearest cent.) ..(0) Using the dividend discount model, what would be the stock price if the company increased its retention rate to 75% (holding all else constant)? SE (Round to the nearest cont.) What would be the P/E ratio (PE) the company increased its retention ratio to 75% (holding alolte constant)? (Round to three decimal places) d. What is the stock price using the dividend discount model? (Round to the nearest cent.) e. (0) Using the dividend discount model, what would be the stock price if the company increased its retention rate to 75% (holding all else constant)? s(Round to the nearest cent.) What would be the P/E ratio (PE) if the company increased its retention ratio to 75% (holding all else constant)? (Round to three decimal places.) e. () Using the dividend discount model, what would be stock price if the company paid out all its earnings in the form of dividends? (Round to the nearest cont.) What would be the P/E ratio (PE) and stock price if the company paid out all its earnings in the form of dividends? (Round to three decimal places) 1. What have you learned about the relationship between the retention ratio and the PE ratio? (Select from the drop-down menus) Assume that the investor's required rate of return is greater than the dividend growth rate, the higher the retention ratio, other things being the same, the the value of the common stock and thus the the price earnings ratio, P/E. S
