# Question

Georgetown Motorcars (GM) common stock currently is selling for $70, which is 20 times its EPS. The most recent dividend paid by GM was $2.59 per share.

a. What is GM’s current EPS?

b. What is GM’s current dividend payout ratio?

c. Assume that investors require a 12 percent return to invest in GM’s stock. Compute both the dividend yield and the growth provided by GM’s stock.

d. The industry P/E ratio normally varies from around 10× to 15×. Using these industry averages, estimate the price at which GM should sell.

e. Discuss some factors that might justify GM’s P/E ratio being greater than the industry average.

a. What is GM’s current EPS?

b. What is GM’s current dividend payout ratio?

c. Assume that investors require a 12 percent return to invest in GM’s stock. Compute both the dividend yield and the growth provided by GM’s stock.

d. The industry P/E ratio normally varies from around 10× to 15×. Using these industry averages, estimate the price at which GM should sell.

e. Discuss some factors that might justify GM’s P/E ratio being greater than the industry average.

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