Assume that you have a company that makes $4 per share in net income. Assume...
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Assume that you have a company that makes $4 per share in net income. Assume the company has a incremental return on investment of 30% and investors require a 15% rate of return on companies of this type.
- If the company were to payout 100% of their earnings, what would be the price and P/E of the stock?
- If the company were to payout 80% of their earnings, what would be the price and P/E of the stock?
- If the company were to payout 60% of their earnings, what would be the price and P/E of the stock?
- Repeat the process in a) thru c), except assume the incremental return on investment is now 10%.
100% payout
80% payout
60% payout
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