Question #80
Reading: Reading 22 Market-Based Valuation - Price and Enterprise Value Multiples
PDF File: Reading 22 Market-Based Valuation - Price and Enterprise Value Multiples.pdf
Page: 29
Status: Unattempted
Question
What is the justified trailing price-to-earnings (P/E) multiple of a stock that has a payout ratio of 65% if the shareholders require a return of 10% on their investment and the expected growth rate in dividends is 6%?
Answer Choices:
A. 9.28
B. 17.23
C. 16.25
Explanation
P0/E0 = (0.65 × 1.06) / (0.10 – 0.06) = 17.225