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.

  • CreatedNovember 24, 2014
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