Suppose a firm's price/earnings ratio is 10.It expects to pay a dividend of $1.20 per share to maintain a 60 percent payout ratio.What is the firm's required return if its return on equity is 13.5 percent?

Name: Suppose a firm's price/earnings ratio is 10.It expects to pay a dividend of $1.20 per share to maintain a 60 percent payout ratio.What is the firm's required return if its return on equity is 13.5 percent?
Brand: Quizplus
Rating: 4.8 (62 reviews)

Question

Quizplus · Accepted Answer

Compute g = 13.5%*(1-60%)= 5.4%,Then k_c= 0.60/10+0.054 = 11.4%

Suppose a Firm's Price/earnings Ratio Is 10