Gamma Ltd's net profit for the last financial year was $177,000 and it paid $108,000 in dividends. It expects net profit to grow at 3.8% p.a. in perpetuity and to maintain a constant dividend payout ratio. Its beta is 1.3, the risk-free rate is 2.1% and the equity risk premium is 7.8%. What is its justified forward P/E/ ratio?

Answer rating: 100% (QA)

We must utilize both the capital asset pricing model and the dividend discount model to get the just... View the full answer