Assume an average dividend payout rate of 100% for both U.S. and Japanese companies. Suppose the average P/E ratio for Japanese firms is 38 and 16 for U.S. firms. Based on the dividend growth model, in order for Japanese and U.S. companies to have the same average cost of equity capital, how much higher would the Japanese annual earnings growth rate have to be?

Answer rating: 100% (QA)

SOLUTION To determine how much higher the Japanese annual earnings growth rate would have to be for Japanese and US companies to have the same average cost of equity capital we can use the dividend gr... View the full answer