What is the market price of a share of stock for a firm that pays dividends of $1.20 per share, has a P/E of 14, and a dividend payout ratio of 0.4?
A) $16.80
B) $42
C) $3
D) $28

Question

Quizplus · Accepted Answer

The dividend payout ratio is the portion of earnings paid to shareholders in dividends. Given a dividend payout ratio of 0.4 (or 40%), and dividends of $1.20 per share, we can calculate earnings per share (EPS) as $1.20 / 0.4 = $3.00. With a P/E ratio of 14, the market price per share is EPS multiplied by the P/E ratio, which is $3.00 * 14 = $42.

What Is the Market Price of a Share of Stock