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A company is expected to pay out 40% of its expected earnings per share of €0.5 next year as dividends. The earnings are expected to grow 2% per year in perpetuity and the cost of equity is 7%. Supposing that the company is a stable growth dividend paying, calculate the expected PE ratio. P/E Payout ratio*(1+g)/(r-g) A. 4 B. 8 C. 10 D. 20 E. 25

A company is expected to pay out 40% of its expected earnings per share of €0.5 next year as dividends. The earnings are expected to grow 2% per year in perpetuity and the cost of equity is 7%. Supposing that the company is a stable growth dividend paying, calculate the expected PE ratio. P/E Payout ratio*(1+g)/(r-g) A. 4 B. 8 C. 10 D. 20 E. 25

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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A company is expected to pay out 40% of its expected earnings per share of €0.5 next year as dividends. The earnings are expected to grow 2% per year in perpetuity and the cost of equity is 7%. Supposing that the company is a stable growth dividend paying, calculate the expected PE ratio. P/E=Payout ratio*(1+g)/(r-g) A. 4 B. 8 C. 10 D. 20 E. 25
Transcribed Image Text:A company is expected to pay out 40% of its expected earnings per share of €0.5 next year as dividends. The earnings are expected to grow 2% per year in perpetuity and the cost of equity is 7%. Supposing that the company is a stable growth dividend paying, calculate the expected PE ratio. P/E=Payout ratio*(1+g)/(r-g) A. 4 B. 8 C. 10 D. 20 E. 25
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