| This problem requires knowledge from two previous problems, problems 8 and 9. |
| In problem 8, it states that the company's return on equity is 16% |
| In problem 9, it states that your required rate of return is 13%. |
| I like to put information that I will need into the excel, as follows: |
| Return on equity: | | | | 0.16 |
| Required return | | | | 0.13 |
| Dividend Payout ratio | | | | 0.5 |
| The first thing to do is to figure the growth rate, which is calculated by |
| multiplying the return on equity times (1-payout ratio) |
| Growth | | | | 0.08 |
| Now find the P/E ratio, which is calculated by dividing the dividend payout |
| ratio by (required return - growth rate) |
| P/E ratio | | | | 10 |
ms.zas
JobAid11-10.EXAMP.EXCEL.xlsx
