Equation 9.4 shows the relation between a stocks value and the dividend that is expected next year
Question:
Equation 9.4 shows the relation between a stock’s value and the dividend that is expected next year if dividends grow at a constant rate forever. If a firm pays all of its earnings as dividends, show how Equation. 9.4 can be rearranged to calculate that firm’s P/E ratio. What does this tell us about the factors that determine a firm’s P/E ratio?
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...
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where E 1 is the earnings pershare next year ...View the full answer
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Related Book For 
Fundamentals of corporate finance
ISBN: 978-0470876442
2nd Edition
Authors: Robert Parrino, David S. Kidwell, Thomas W. Bates
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