SUBJECT 3 a. Salomon S.A. announced for 2018 year a dividend payout ratio of 40%. The ROE of the company is 10%. The dividends and stocks earnings are expected to grow at the same rate. The current year earnings per share are 7 euros and the company has a beta coefficient of 1. The risk-free rate is 6% and analysts estimate that the market risk premium is 5%. Taking into account the above information, estimate: I. The expected growth rate, and its P/E ratio. II. The intrinsic value of Salomon company using the P/E ratio approach. III. If dividend growth forecasts for Salomon Company are revised downward by 1% what will happen to the Salomon stock price and P/E ratio. IV. Explain how an increase in dividend payout would affect the (all other factors remain constant) growth rate and P/E ratio. b. he price to earnings ratio indicates the expected price of a share based on its earnings. As a companys earnings per share rise, so does their market value per share. A company with a high P/E ratio usually indicates positive future performance and investors are willing to pay more for this companys shares. But reported earnings are computed in accordance with generally accepted accounting rules and often management can easily manipulate it with specific accounting techniques. Which are those accounting methods that artificially may restructure the P/E ratio trend line?