No-Growth Industries pays out all of its earnings as dividends. It will pay its next $3...
No-Growth Industries pays out all of its earnings as dividends. It will pay its next $3 per share dividend in a year. The discount rate is 6%.
a. What is the price-earnings ratio of the company? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
b. What would the P/E ratio be if the discount rate were 5%? (Round your answer to 2 decimal places.)
Homework Answers
| a. | |||||||||
| Price-earning ratio | = | Market Price per share/Earning per share | |||||||
| = | $ 50.00 | / | $ 3.00 | ||||||
| = | 16.67 | ||||||||
| Working: | |||||||||
| Market Price per share | = | Dividend/discount rate | |||||||
| = | $ 3.00 | / | 6% | ||||||
| = | $ 50.00 | ||||||||
| b. | |||||||||
| Price-earning ratio | = | Market Price per share/Earning per share | |||||||
| = | $ 60.00 | / | $ 3.00 | ||||||
| = | 20.00 | ||||||||
| Working: | |||||||||
| Market Price per share | = | Dividend/discount rate | |||||||
| = | $ 3.00 | / | 5% | ||||||
| = | $ 60.00 | ||||||||
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