Georgetown Motorcars (GM) common stock currently is selling for $70, which is 20 times its EPS. The

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.

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...