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Looking for help with DEF (Common stock valuation) Assume the following: - the investor's required rate of return is 12 percent, - the expected level
Looking for help with DEF
(Common stock valuation) Assume the following: - the investor's required rate of return is 12 percent, - the expected level of earnings at the end of this year (E1) is $6, - the retention ratio is 50 percent, - the return on equity (ROE) is 14 percent (that is, it can earn 14 percent on reinvested earnings), and - similar shares of stock sell at multiples of 10.000 times earnings per share. Questions: a. Determine the expected growth rate for dividends. b. Determine the price earnings ratio (P/E1). c. What is the stock price using the P/E ratio valuation method? d. What is the stock price using the dividend discount model? 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 P/E ratios? a. What is the expected growth rate for dividends? 7% (Round to two decimal places.) b. What is the price earnings ratio (P/E1) ? (Round to three decimal places.) c. What is the stock price using the P/E ratio valuation method? $60 (Round to the nearest cent.)Step by Step Solution
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