Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. using the p/e ratio approach to valuation, calcula

Using the P/E ratio approach to valuation, calculate the value of a share of stock...

50.1K

Verified Solution

Question

Finance

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 $4,

the firm follows a policy of retaining 20 percent of its earnings,

the return on equity (ROE) is 13 percent, and

similar shares of stock sell at multiples of 7.693 times earnings per share.

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

Question content area bottom

Part 1

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

Answer & Explanation Solved by verified expert
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students