The Price/Earnings ratio from the data in the table and on Johnson’s assumptions. Introduction: Constant dividend growth model: There are three inputs that play a vital role in this model namely, dividends per share, the required rate of return , and the growth rate in dividends per share. The value of the stock of the company is valued based on the assumption that there will a constant growth in payments made by the company to its equity shareholders.

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Chapter 18, Problem 4CP

a.

Summary Introduction

To calculate: The Price/Earnings ratio from the data in the table and on Johnson’s assumptions.

Introduction:

Constant dividend growth model: There are three inputs that play a vital role in this model namely, dividends per share, the required rate of return, and the growth rate in dividends per share. The value of the stock of the company is valued based on the assumption that there will a constant growth in payments made by the company to its equity shareholders.

b.

Summary Introduction

To evaluate: The changes affecting the Price/Earnings ratio due to the factors such as Risk of Sundanci; estimated growth rate of earnings and dividends; and market risk premium, assuming the constant dividend growth model.

Introduction:

Constant dividend growth model: There are three inputs that play a vital role in this model namely, dividends per share, the required rate of return, and the growth rate in dividends per share. The value of the stock of the company is valued based on the assumption that there will a constant growth in payments made by the company to its equity shareholders.

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