Dividing a stock's earnings per share by the expected rate of return will value the share correctly if no new shares are issued and the dividend yield:
A) exceeds the required return.
B) equals the required return.
C) is zero.
D) is constant.

Question

Quizplus · Accepted Answer

If the dividend yield is zero, the entire earnings are retained, and the stock's value can be calculated by dividing the earnings per share by the expected rate of return, assuming no new shares are issued.

Dividing a Stock's Earnings Per Share by the Expected Rate