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Using the P/E ratio approach to valuation, calculate the value of a share of stock under the following conditions:
-the investors required rate of return 14%
-the expected level of earning at the end of the year (E1) is $5
-the firm follows a policy of retaining 40% of it's earnings.
-the return on equity (ROE) is 15%, and
-similar shares of stock sell at multiples of 7.500 times earning per share.
Now show that you get the same answer using the discounted dividend model.
a. the stock price using the P/E ratio valuation method is $________ (round to the nearest cent.)
b. The stock price using the dividend discount model is $_________ (round to the nearest cent.)
Which of the following journal entries would be recorded if a business performed services for $400 cash and $1000 on account?
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You have decided to invest 30 percent in X; 30 percent in Y; and 40 percent in Z. The probability of the state of the economy is Boom 25%; Normal 60%; and, Bust 15%. What is the portfolio expected return? If the expected T-bill rate is 1.5 percent, w..
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