No-Growth Industries pays out all of its earnings as dividends. It will pay its

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 8%.

What is the price-earnings ratio of the company? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

What would the P/E ratio be if the discount rate were 5%? (Round your answer to 2 decimal places.)

What is the price-earnings ratio of the company? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Explanation / Answer

a.

Price = D1/ke as Growth is zero , Price = 4/8%=50

as Dividend = earnings, so

P/E=50/4=12.5

B.

Price = 4/5%=80

as Dividend = earnings, so

P/E=80/4=20

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