What is the expected price for the stock of a company that just paid a dividend of $3.00? The company has a dividend payout ratio of 50 percent,discount rate of 25 percent,and a P/E of 10.
A) $60.00
B) $30.00
C) $12.00
D) $45.00
E) $22.50

Question

Quizplus · Accepted Answer

The expected price of the stock can be calculated using the P/E ratio and the earnings per share (EPS). Since the company paid a dividend of $3.00 and has a dividend payout ratio of 50%, the EPS is $6.00 ($3.00 / 0.50). With a P/E of 10, the expected stock price is $60.00 (10 * $6.00).

What Is the Expected Price for the Stock of a Company