The equity discount rate , Finance Basics

Assume IBM pays out all earnings as dividends. Today is t = 0 and IBM just paid a $2 dividend on $2 of earnings. The market expects dividends will grow each year by 5% until t = 4 and then grow each year by 6% until t = 8, and then grow at some constant rate g thereafter. Right after today's dividend was paid, IBM was trading at a price of $80. The equity discount rate is 10%.

a)  What is the market expecting the PE ratio to be at t = 7 (where E in the PE ratio is based on expected earnings at t = 8, and P is based on the t = 7 ex-dividend stock price).
 
b)  What is the market expecting g to be?

Posted Date: 3/16/2013 1:19:54 AM | Location : United States







Related Discussions:- The equity discount rate , Assignment Help, Ask Question on The equity discount rate , Get Answer, Expert's Help, The equity discount rate Discussions

Write discussion on The equity discount rate
Your posts are moderated
Related Questions
Pursuing self esteem ambitions and Creative Accounting Pursuing power and self esteem ambitions This is called "empire building" to enlarge the firm via acquisitions and me

Price - Sales of Goods Like where section 10 provides such the price for goods may like fixed by like: (i) Contract; and one is (ii) The manner provided within the contr

Important points for Working Capital Cycle A lengthy working capital cycle is a sign of poor management of debtors and stock reflecting low turnover of debtors and stock and l

Three of these companies have bonds that carry investment - grade ratings. The other 3 companies carry junk - bond ratings. Judging by the information in the table, which 3 compani

Paper on Estate Planning (3–5 pages) Evaluate the tools commonly used in estate planning, including trusts, life insurance, and annuities. Compare the tools as to how they would a

Ask lajgkjasbgksabgbaskjbaskjbasjgbhjabgjbjgbskjgbkasbgjkabksgbksbgkabkhvakkvbaoygfyabkbkkye#Minimum 100 words accepted#

Advantagesand Disadvantages of IRR Advantages of IRR It seems time value of money It seems cash flows over the whole life of the project. It is compatible along


Financial Intermediaries These are institutions that link or mediate between the investors and savers: Some examples of financial intermediaries are as follow: 1. Comme

1 st bank offers you a car loan at an annual interest rate of 10% compounded monthly. What effective annual interest rate is the bank charging you?  Solution - Calculate