A firm earned $484 million in 2021 on a beginning book value of common equity of...

  

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A firm earned $484 million in 2021 on a beginning book value of common equity of $2,600 million. The firm paid no dividends and had no stock transactions during that year. It has a required return for its equity of 12%. At the end of 2021, its shares traded at a trailing P/E of 15.0. a) What growth rate in future residual earnings is implied by this P/E ratio of 15.0? b) At this growth rate, what is the return on common equity forecasted for 2022? A firm earned $484 million in 2021 on a beginning book value of common equity of $2,600 million. The firm paid no dividends and had no stock transactions during that year. It has a required return for its equity of 12%. At the end of 2021, its shares traded at a trailing P/E of 15.0. a) What growth rate in future residual earnings is implied by this P/E ratio of 15.0? b) At this growth rate, what is the return on common equity forecasted for 2022?

Answer rating: 100% (QA)

To find the growth rate in future residual earnings implied by the trailing PE ratio we can use the ... View the full answer