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stuck on section c through e (Common stock valuation) Assume the following: - the investor's required rate of return is 12.5 percent, - the expected

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stuck on section c through e

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(Common stock valuation) Assume the following: - the investor's required rate of return is 12.5 percent, - the expected level of earnings at the end of this year (E1) is $8, - the retention ratio is 30 percent, - the return on equity (ROE) is 15 percent (that is, it can earn 15 percent on reinvested earnings), and - similar shares of stock sell at multiples of 8.750 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 stark nrice Isinn the dividend disenount model? - the retention ratio is 30 percent, - the return on equity (ROE) is 15 percent (that is, it can earn 15 percent on reinvested earnings), and - similar shares of stock sell at multiples of 8.750 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? e. What would happen to the P/E ratio (P/E1) and stock price if the company increased its retention rate to 80 percent (holding all else constant)? What would happen to the P/E ratio (P/E 1 ) and stock price if 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? d. What is the stock price using the dividend discount model? (Round to the nearest cent.) e. (i) Using the dividend discount model, what would be the stock price if the company increased its retention rate to 80% (holding all else constant)? \$ (Round to the nearest cent.) What would be the P/E ratio (PIE ) if the company increased its retention ratio to 80% (holding all else constant)? (Round to three decimal places.) e. (ii) Using the dividend discount model, what would be stock price if the company paid out all its earnings in the form of dividends? (Round to the nearest cent.) What would be the P/E ratio (P/E1) and stock price if the company paid out all its earnings in the form of dividends? (Round to three decimal places.)

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