# Question

Currently, the dividend-payout ratio (D/E) for the aggregate market is 60 percent, the required return (k) is 11 percent, and the expected growth rate for dividends (g) is 5 percent.

a. Compute the current earnings multiplier.

b. You expect the D/E payout ratio to decline to 50 percent, but you assume there will be no other changes. What will be the P/E?

c. Starting with the initial conditions, you expect the dividend-payout ratio to be constant, the rate of inflation to increase by 3 percent, and the growth rate to increase by 2 percent.

Compute the expected P/E.

d. Starting with the initial conditions, you expect the dividend-payout ratio to be constant, the rate of inflation to decline by 3 percent, and the growth rate to decline by 1 percent.

Compute the expected P/E.

a. Compute the current earnings multiplier.

b. You expect the D/E payout ratio to decline to 50 percent, but you assume there will be no other changes. What will be the P/E?

c. Starting with the initial conditions, you expect the dividend-payout ratio to be constant, the rate of inflation to increase by 3 percent, and the growth rate to increase by 2 percent.

Compute the expected P/E.

d. Starting with the initial conditions, you expect the dividend-payout ratio to be constant, the rate of inflation to decline by 3 percent, and the growth rate to decline by 1 percent.

Compute the expected P/E.

## Answer to relevant Questions

As an analyst for Charlotte and Chelle Capital, you are forecasting the market P/E ratio using the dividend discount model. Because the economy has been expanding for 9 years, you expect the dividend-payout ratio will be at ...Briefly describe the results of the studies that examined industry performance over time. Do these results complicate or simplify industry analysis?Discuss the two variables that must be considered whether you are using the present value of cash flow approach or the relative valuation ratio approach to valuation. Why are these variables relevant for either valuation ...What is the rationale for using the price/book value ratio as a measure of relative value?Discuss the reasoning behind the contention that in a completely competitive economy, there would never be a true growth company.Post your question

0