s required rate of return is 14 percent, cted level of earnings at the end of this year (E, ) is $8, follows a policy of retaining 60 percent of its earnings, n on equity (ROE) is 16 percent, and hares of stock sell at multiples of 9.091 times earnings per share. that you get the same answer using the discounted dividend model. ck price using the P/E ratio valuation method is $. (Round to the nearest cent.)
s required rate of return is 14 percent, cted level of earnings at the end of this year (E, ) is $8, follows a policy of retaining 60 percent of its earnings, n on equity (ROE) is 16 percent, and hares of stock sell at multiples of 9.091 times earnings per share. that you get the same answer using the discounted dividend model. ck price using the P/E ratio valuation method is $. (Round to the nearest cent.)
Chapter7: Common Stock: Characteristics, Valuation, And Issuance
Section: Chapter Questions
Problem 2P
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Question
q10
Transcribed Image Text:(Related to Checkpoint 10.2) (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 14 percent,
• the expected level of earnings at the end of this year (E, ) is $8,
the firm follows a policy of retaining 60 percent of its earnings,
• the return on equity (ROE) is 16 percent, and
• similar shares of stock sell at multiples of 9.091 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 $
(Round to the nearest cent.)
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