A firm has a P/E ratio of 0.80 and a cost of capital of 5% p.a.and has expected growth of dividends in perpetuity of 2% p.a.What is the share price of the firm?

A) $ 2.40 $
B) $ 24.33 $
C) $ 26.67 $
D) $ 32.25 $

Question

A firm has a P/E ratio of 0.80 and a cost of capital of 5% p.a.and has expected growth of dividends in perpetuity of 2% p.a.What is the share price of the firm?

A) $ 2.40 $
B) $ 24.33 $
C) $ 26.67 $
D) $ 32.25 $

Quizplus · Accepted Answer

Rearranging equation 12.11,page 427,we can compute the share price as follows: 0.8/(0.05 - 0.02)= 26.67.

A Firm Has a P/E Ratio of 0 2.40 2.40 2.40

A Firm Has a P/E Ratio of 0 $2.40$