Explain why using the P/E relative value approach may be useful for companies that do not pay dividends.
Answer to relevant QuestionsHow is a firm’s changing P/E ratio reflected in the stock price? Give examples. A preferred stock from Hecla Mining Co. (HLPRB) pays $3.50 in annual dividends. If the required return on the preferred stock is 6.8 percent, what is the value of the stock? A firm does not pay a dividend. It is expected to pay its first dividend of $0.25 per share in two years. This dividend will grow at 10 percent indefinitely. Using an 11.5 percent discount rate, compute the value of this ...Consider a firm that had been priced using an 11.5 percent growth rate and a 13.5 percent required return. The firm recently paid a $1.50 dividend. The firm has just announced that because of a new joint venture, it will ...Financial analysts forecast Safeco Corp.’s (SAF) growth rate for the future to be 8 percent. Safeco’s recent dividend was $0.88. What is the value of Safeco stock when the required return is 12 percent?
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