The P/E ratio for Mailbu Boats (MBUU) is 13.24 and the expected growth rate is 16%....

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The P/E ratio for Mailbu Boats (MBUU) is 13.24 and the expected growth rate is 16%....

The P/E ratio for Mailbu Boats (MBUU) is 13.24 and the expected growth rate is 16%. If the plowback ratio is 80% what is the current required rate of return (market capitalization rate) of the stock?

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Answer 1

Answer #1

P/E Ratio = 13.24

Price = 13.24E

As per Constant Growth Model,

Price = 0.20(E)(1.16)/(r - 0.16)

r = 0.20(E)(1.16)/(13.24)(E) + 0.16

r = 17.75%

Required Rate = 17.75%

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Answer 2

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