Calculate the expected share price

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Question - A firm projects an ROE of 20%; it will maintain a reinvestment ratio of 0.3. The firm is expecting earnings of R2 per share and investors expect a return of 12% on the investment.

Required -

1. Calculate the expected share price and the price-earnings (P/E) ratio of the firm.

2. Using information above and your answer in 2.1, calculate dividend yield.

3. Describe how a low dividend yield affects the earnings yield and the P/E ratio.

4. Analyse the most important factors that would influence an investment analyst in the rating of P/E ratios.

Reference no: EM133105002

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