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IBM at one time traded for $115 per share. At the time, analysts considered its P.E ratio (price-earnings ratio, P0/EPS1) to be 27. If a
IBM at one time traded for $115 per share. At the time, analysts considered its P.E ratio (price-earnings ratio, P0/EPS1) to be 27. If a discount rate of 11% was appropriate for IBM sahres, (a) what fraction of the price of a share was attributed to its future growth opportunities (PVGO/P0)? (b) If IBM had decided on a policy of growing their dividends forever at a constant rate of 10%/year, what dividend policy would you ahve recommended (that is, what payout ratio, or DIV1/EPS1), would you ahve expected for IBM?
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