Next Question (Common stock valuation) Assume the following: the investor's required rate of retum is 14 percent, the expected level of earnings at the end of this year (E) is $6, the retention ratio is 60 percent, the return on equity (ROE) is 18 percent (that is, it can earn 18 percent on reinvested earnings), and similar shares of stock sell at multiples of 12.500 times earnings per share. Questions: a. Determine the expected growth rate for dividends b. Determine the price earnings ratio (P/E). 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 (PIE,)? (Round to three decimal places) Questions a. Determine the expected growth rate for dividends b. Determine the price eamings 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 firm could eam 23 percent on reinvested earnings (ROE)? f. What does this tell you about the relationship between the rate the firm can eam on reinvested earnings and PE tatos? 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.) wuestions 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 (PVE,) and stock price if the firm could eam 23 percent on reinvested earnings (ROEY 1. What does this tell you about the relationship between the rate the firm can eam on teinvested earings and P/E ratios? e. Using the dividend discount model, what would be the stock price if the firm could eam 23% on reinvested earings (ROE)? $(Round to the nearest cent.) What would be the PE ratio (P/E) if the firm could earn 23% on reinvested earnings (ROE)? (Round to three decimal places.) f. What does this tell you about the relationship between the rate the firm can earn on reinvested earnings and PE ratios? (Select from the dre-down menus Enter your answer in each of the answer boxes Questions a. Determine the expected growth rate for dividends b. Determine the price eamings 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 PE ratio (PE) and stock price if the firm could cam 23 percent on roinvested earnings (ROE)? 1. What does this tell you about the relationship between the rate the firm can eam on reinvested earnings and P/E ratios? lower What would be the P/E ratio (PE) if the firm could earn 23% on reinvested earnings (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 a The higher the ROE, other things being the same, the V the value of the common stock and thus the higher elect from the drop down menus the price earnings ratio, PE Enter your answer in each of the answer boxes
