(Common stock valuation) Assume the following: the investor's required rate of retum is 18 percent, . the expected level of earnings at the end of this year (Eq) is $8, the retention ratio is 50 percent, the retum on equity (ROE) is 19 percent (that is, it can earn 19 percent on reinvested earnings), and similar shares of stock sell at multiples of 5.883 times earnings per share. Questions: a. Determine the expected growth rate for dividends. 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? a. What is the expected growth rate for dividends? % (Round to two decimal places.) b. What is the price earnings ratio (PE)? (Round to three decimal places.) c. What is the stock price using the P/E ratio valuation method? (Round to the nearest cent.) d. What is the stock price using the dividend discount model? (Round to the nearest cent.) e. Using the dividend discount model, what would be the stock price if the firm could earn 24% on reinvested earnin (Round to the nearest cent.) IA DIC INI BERADAR RIDAE the expected level of earnings at the end of this year (Ex) is $8. the retention ratio is 50 percent the return on equity (ROE) is 19 percent (that is, it can earn 19 percent on reinvested earnings), and similar shares of stock sell at multiples of 5.883 times eamings per share. Questions: a. Determine the expected growth rate for dividends. 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 (P/E) and stock price if the firm could earn 24 percent on reinvested earnings (ROE)? f. What does this tell you about the relationship between the rate the firm can cam on reinvested earnings and PlE ration? e. What is the stock price using the PlE ratio valuation method? (Round to the nearest cent) d. What is the stock price using the dividend discount model? $(Round to the nearest cent) o. Using the dividend discount model, what would be the stock price If the firm could earn 24% on reinvested earnings (ROE)? (Round to the nearest cont.) What would be the P/E ratio (PE) if the firm could eam 24% on reinvested earrings (ROE)? (Round to three decimal places.) 1. What does this tell you about the relationship between the rate the firm can earn on reinvested earnings and PE ratios? (Select from the drop down menus.) The higher the ROE, other things being the same, the the value of the common stock and thus the the price earnings ratio, PE Enter your answer in each of the answer boxes
