The market-capitalization rate on the stock of Flexsteel Company is 12%.The expected ROE is 13%, and the expected EPS are $3.60.If the firm's plowback ratio is 50%, the P/E ratio will be

Question

Quizplus · Accepted Answer

The P/E ratio can be calculated using the formula: P/E = (1 - b) / (k - b * ROE), where b is the plowback ratio, k is the market-capitalization rate, and ROE is the return on equity. Substituting the given values: P/E = (1 - 0.5) / (0.12 - 0.5 * 0.13) = 0.5 / (0.12 - 0.065) = 0.5 / 0.055 = 9.09.

The Market-Capitalization Rate on the Stock of Flexsteel Company Is