(Valuing common stock) Dubai Metro's stock price was at $100 per share when it announced that it would cut its dividends for next year from $10 per share to $6 per share, with the additional funds to be used for expansion. Prior to the dividend cut, Dubai Metro expected its dividends to grow at a 4 percent rate, but with the expansion, dividends are now expected to grow at 7 percent. How do you think the announcement will affect Dubai Metro's stock price? Comparables Approach to Valuing Common Stock 10-12. (Using relative valuation for common stock) (Related to Checkpoint 10.2 on page 345) Using the P/E ratio approach to valuation, calculate the value of a share of stock under the following conditions: - The investor's required rate of return is 12 percent. - The expected level of carnings at the end of this year (E1) is $4.00. - The firm follows a policy of retaining 30 percent of its earnings. - The return on equity (ROE) is 15 percent. - Similar shares of stock sell at multiples of 13.3325 times earnings per share. Now show that you get the same answer using the discounted dividend model