a.Compute the price-earnings ratio under the following sets of assumptions:
A.
$\begin{array} { c c c c }
& \text { Cost of Equity } & \text { Growth Rate } &P/R\
\text { Scenario } & \text { Capital } & \text { in Earnings } &\text { Ratio }\
\hline 1 & 0.13 & 0.09 & \
2 & 0.13 & 0.11 & \
3 & 0.15 & 0.09 & \
4 & 0.18 & 0.09 & \
5 & 0.18 & 0.11 &
\end{array}$
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:
 A.
$\begin{array} { c c c c } 
& \text { Cost of Equity } & \text { Growth Rate } &P/R\
\text { Scenario } & \text { Capital } & \text { in Earnings } &\text { Ratio }\
\hline 1 & 0.13 & 0.09 &  \
2 & 0.13 & 0.11 &  \
3 & 0.15 & 0.09 &  \
4 & 0.18 & 0.09 &  \
5 & 0.18 & 0.11 & 
\end{array}$ 
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:
 A.
$\begin{array} { c c c c } 
& \text { Cost of Equity } & \text { Growth Rate } &P/R\
\text { Scenario } & \text { Capital } & \text { in Earnings } &\text { Ratio }\
\hline 1 & 0.13 & 0.09 &  \
2 & 0.13 & 0.11 &  \
3 & 0.15 & 0.09 &  \
4 & 0.18 & 0.09 &  \
5 & 0.18 & 0.11 & 
\end{array}$ 
b.Assess the sensitivity of the price-earnings ratio to changes in the cost of equity capital and changes in the growth rate.

ACompute the Price-Earnings Ratio Under the Following Sets of Assumptions