Using the P/E ratio approach tovaluation, calculate the value of a share of stock under the followingconditions:

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theinvestor's required rate of return is 12 percent,

the expected level of earnings at the end of this year (Upper E1) is $5

the firm follows a policy of retaining 30 percent of itsea

the return on equity (ROE) is 14 percent, and

similar shares of stock sell at multiples of 8.974 times earnings per share.

Now show that you get the same answer using the discounted dividend model.

a.The stock price using the P/E ratio valuation method is ?

. b.The stock price using the dividend discount model is ?

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