P/E ratio approach to valuation
P/E ratio approach to valuation.
Question 9: (10 points). (Relative valuation of common stock) 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 13 percent,
- the expected level of earnings at the end of this year (E1) is $8,
- the firm follows a policy of retaining 40 percent of its earnings,
- the return on equity (ROE) is 15 percent, and
- similar shares of stock sell at multiples of 8.571 times earnings per share.
Now show that you get the same answer using the discounted dividend model. (Round to the nearest cent.)
Save your time - order a paper!
Get your paper written from scratch within the tight deadline. Our service is a reliable solution to all your troubles. Place an order on any task and we will take care of it. You won’t have to worry about the quality and deadlines
Order Paper Now|
a. The stock price using the P/E ratio valuation method is: |
$ |
|
b. The stock price using the dividend discount model is: |
$ |
P/E ratio approach to valuation
"If this is not the paper you were searching for, you can order your 100% plagiarism free, professional written paper now!"
