a company's stock price is $42, it pays out all earnings as dividends, so the simple...
a company's stock price is $42, it pays out all earnings as dividends, so the simple dividend discount model is appropriate. assume the discount factor the market applies to the company's expected dividend is 8%. If ROE is 16%, what is the book value per share? Answer is 21. Please show all work how to get to the answer.
Homework Answers
Required rate = Dividend/Current price
8%*42= Dividend
3.36=Dividend
The dividend will be equal to earnings per share as the company pays out all earnings as a dividend,
As ROE=Net income/Shareholders equity, or EPS*No of shares/BVPS* No of shares or,
ROE=EPS/Book value per share
16%=3.36/BVPS
BVPS=21
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