Exhibit 12-2 USE THE FOLLOWING INFORMATION FOR THE PROBLEMS 14-16 Assume that the dividend payout ratio will be 75 percent when the rate on long-term government falls to 8 percent. Since investors are becoming more risk averse, the equity risk premium will percent and investors will require a 15 percent return. The return on equity will be 12 percent. NARREND rise to 7 14. Refer to Exhibit 12-2. What is the expected sustainable growth rate? a. 9.0% b. 72% c. 6,0% d, 3.0% e. 3.6% Refer to Exhibit 12-2. What is your expectation of the market P/E ratio? a. 3.92 b. 6.25 c. 6.67 d. 8.33 e. 12.00 15. 16. Refer to Exhibit 12-2. To what price will the market rise if the earnings expectation is $32.00? a. $384.00 b. $266.56 c. $213.44 d. $200.00 e. $125.44 17. If, for the S&P Industrials Index, the profit margin was 0.35 and the equity turnover ratio was 10, the ROE would be: a. 0.035% b. 2.857% c. 3.500% d. 28.57% e. 35.00% 18. A stock possesses a high probability of low or negative rates of return and a low probability of normal or high rates of return. a. Growth b. Defensive c. Cyclical d. Speculative e. Value