A mining company, with a stable growth of 1%, has net income of $50 million and...

 

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A mining company, with a stable growth of 1%, has net income of $50 million and the market value of its equity is $250 million. The company decides to increase its dividend payout ratio by 2%. What will most likely happen to the company's price-to-earnings (P/E) ratio? The P/E ratio will decrease O The P/E ratio will increase O The P/E ratio will remain unchanged 4 A mining company, with a stable growth of 1%, has net income of $50 million and the market value of its equity is $250 million. The company decides to increase its dividend payout ratio by 2%. What will most likely happen to the company's price-to-earnings (P/E) ratio? The P/E ratio will decrease O The P/E ratio will increase O The P/E ratio will remain unchanged 4

Answer rating: 100% (QA)

To determine the effect on the pricetoearnings PE ratio lets first calculate the companys current PE ratio and then analyze the impact of the increased dividend payout ratio 1 Current PE Ratio PE ratio Market value of equity Net income PE ratio 250 million 50 million PE ratio 5 2 Impact of Increased Dividend Payout Ratio Increasing the dividend payout ratio means the company ... View the full answer