Using the P-E ratio approach to valuation

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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 investor's required rate of return is 13 percent

the expected level of earnings at the end of this year is $4

the firm follows a policy of retaining 40 percent of its earnings

the return of equity (ROE) is 14 percent and

similar shares of stock sell multiples of 8.108 times earnings per share

Now show that you get the same answer using the discounted dividend model

A. the stock price using the P/E ration valuation method is $

Reference no: EM13921389

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