Airbus Industries has a required rate of return of 16%, a constant growth rate of 7%, and a dividend payout ratio of 35%. The stock’s P/E ratio should be

Question

Airbus Industries has a required rate of return of 16%, a constant growth rate of 7%, and a dividend payout ratio of 35%.  The stock’s P/E ratio should be

Quizplus · Accepted Answer

The P/E ratio can be calculated using the formula P/E = (D1/E1) / (k - g), where D1/E1 is the dividend payout ratio, k is the required rate of return, and g is the growth rate. Substituting the given values: P/E = 0.35 / (0.16 - 0.07) = 0.35 / 0.09 = 3.8889. However, without the direct application of this formula leading to the provided options, it seems there might be a misunderstanding or typo in the question or options. Typically, the P/E ratio is also influenced by the earnings growth rate and the company's earnings, not directly calculated from the dividend payout ratio and growth rates as implied. Given the options and the typical understanding of calculating P/E ratios, none directly match the calculation provided, suggesting a possible error in the question setup or a need for clarification.

Airbus Industries Has a Required Rate of Return of 16