Homework Answers
Stock Price = Expected Dividend/(Required Return - Growth Rate)
Growth Rate = Return on Equity*Retention Ratio
P/E Ratio = Price per Share/Earnings per share
b.Growth Rate = 20%*0.4 = 8%
Stock Price = 2*0.6/(20%-8%) = $10
P/E Ratio = 10/2 = 5
c.Growth rate = 20%*0.6 = 12%
Stock Price = 2*0.4/(20%-12%)
= $10
P/E Ratio = 10/2
= 5
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