Which of the following changes will likely lead to a higher P/E,assuming other factors are equal?
A)A decrease in the dividend payout ratio
B)An increase in growth rate of earnings
C)An increase in the required rate of return
D)A decrease in the dividend yield

Question

Quizplus · Accepted Answer

A higher P/E ratio indicates that investors are willing to pay more for each dollar of earnings. An increase in the growth rate of earnings suggests that the company is expected to have higher future earnings, which makes investors willing to pay more. A decrease in the dividend payout ratio (A) or dividend yield (D) may increase the earnings retained by the company, but it does not necessarily lead to higher future earnings or expectations. An increase in the required rate of return (C) would decrease the P/E ratio.

Which of the Following Changes Will Likely Lead to a Higher