Question

No-Growth Industries pays out all of its earnings as dividends. It will pay its next $4 per share dividend in a year. The discount rate is 12%. a. What is the price-earnings ratio of the company

Answer 1

Answer: 8.33

Explanation:

To solve the price-earnings ratio of the company, first we need to calculate the market price share which will be:

= Dividend / Discount rate

= 4/12%

= 4/0.12

= $33.33

The proce earning ratio will now be:

= Market price share / Earnings pee share

= $33.33/4

= 8.33 times