3. Leming plc is a publicly traded company in stable growth. In the just completed financial...

 

Transcribed Image Text:

3. Leming plc is a publicly traded company in stable growth. In the just completed financial year, it paid dividend per share of £4.0 on reported earnings of £5.0 per share. The reported revenue per share was £100.0. The company expects to grow at 3% per year in perpetuity, and its required return on equity is 10%. a. What is the expected Price to Sales ratio for the company? marks) (1.5 b. If you believe a company cannot earn more than its cost of equity in the long run, what would be the steady state growth rate if the payout ratio remains unchanged? By how much (in percentage terms) is the equity over- or under-valued? (3.5 marks) 3. Leming plc is a publicly traded company in stable growth. In the just completed financial year, it paid dividend per share of £4.0 on reported earnings of £5.0 per share. The reported revenue per share was £100.0. The company expects to grow at 3% per year in perpetuity, and its required return on equity is 10%. a. What is the expected Price to Sales ratio for the company? marks) (1.5 b. If you believe a company cannot earn more than its cost of equity in the long run, what would be the steady state growth rate if the payout ratio remains unchanged? By how much (in percentage terms) is the equity over- or under-valued? (3.5 marks)

Answer rating: 100% (QA)

a To find the expected Price to Sales PS ratio well use the Gordon Growth Model to calculate the exp... View the full answer