Assume that a firm has an expected earnings of $3.00, and an expected year-end dividend of $1.50 (i.e., the expected payout ratio is 50 percent since D₁/E₁ = 1.50/3.00 = 0.50). Estimate the firm's P/E ratio if k_e = 14% and g = 6%, and intrinsic value.

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The Answer of Assume that a firm has an expected earnings of $3.00, and an expected year-end dividend of $1.50 (i.e., the expected payout ratio is 50 percent since D₁/E₁ = 1.50/3.00 = 0.50). Estimate the firm's P/E ratio if k_e = 14% and g = 6%, and intrinsic value.

Assume That a Firm Has an Expected Earnings of $3