a. Compute the price-earnings ratio under the following sets of assumptions:
$\begin{array}{|l|l|l|l|}
\hline & \text { Cost of Equity } & \text { Growth Rate } & \text { P/E } \
\hline \text { Scerario } & \text { Capital } & \text { in Earuings } & \text { Ratio } \
\hline 1 & 0.12 & 0.08 & \
\hline 2 & 0.12 & 0.10 & \
\hline 3 & 0.14 & 0.08 & \
\hline 4 & 0.17 & 0.08 & \
\hline 5 & 0.17 & 0.10 & \
\hline & & & \

\end{array}$
b. Assess the sensitivity of the price-earnings ratio to changes in the cost of equity capital and changes in the growth rate.

Question

a. Compute the price-earnings ratio under the following sets of assumptions:
 $\begin{array}{|l|l|l|l|}
\hline & \text { Cost of Equity } & \text { Growth Rate } & \text { P/E } \
\hline \text { Scerario } & \text { Capital } & \text { in Earuings } & \text { Ratio } \
\hline 1 & 0.12 & 0.08 & \
\hline 2 & 0.12 & 0.10 & \
\hline 3 & 0.14 & 0.08 & \
\hline 4 & 0.17 & 0.08 & \
\hline 5 & 0.17 & 0.10 & \
\hline & & & \

\end{array}$
 b. Assess the sensitivity of the price-earnings ratio to changes in the cost of equity capital and changes in the growth rate.

Quizplus · Accepted Answer

The Answer of a. Compute the price-earnings ratio under the following sets of assumptions:
 $\begin{array}{|l|l|l|l|}
\hline & \text { Cost of Equity } & \text { Growth Rate } & \text { P/E } \
\hline \text { Scerario } & \text { Capital } & \text { in Earuings } & \text { Ratio } \
\hline 1 & 0.12 & 0.08 & \
\hline 2 & 0.12 & 0.10 & \
\hline 3 & 0.14 & 0.08 & \
\hline 4 & 0.17 & 0.08 & \
\hline 5 & 0.17 & 0.10 & \
\hline & & & \

\end{array}$
 b. Assess the sensitivity of the price-earnings ratio to changes in the cost of equity capital and changes in the growth rate.

A Compute the Price-Earnings Ratio Under the Following Sets of Assumptions