Question: Equation 9.4 shows the relation between a stocks value and the dividend that is expected next year if dividends grow at a constant rate forever.

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?

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