Polar Express Corporation has just reported a net income of $400,000.It has 250,000 common shares outstanding with a book value of $2 million.The firm always maintain a retention ratio of 25 percent.What is the firm's price-earnings ratio if its required return is 10 percent?

Question

Quizplus · Accepted Answer

Compute ROE = $400,000/$2,000,000 = 20%,G = 20%*25% = 5%
then P/E = 0.75/(10%−5%)= 15

Polar Express Corporation Has Just Reported a Net Income of $400,000.It