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

Ask an Expert

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

Write your message here..

Related Questions

Profitability in relation to investment, Profitability in relation to inves... Profitability in relation to investment - Profitability Ratio a) Return on Investment (ROI) or return on total asset (ROTA) = (Net profit/ Total asset) x 100 The ratio i

Intro to finance, discuss the flow of fund in an open economy discuss the flow of fund in an open economy

New divisor, Able, Baker and Charlie are the only three stocks in an index.... Able, Baker and Charlie are the only three stocks in an index. The stocks will sell for $93.$312 and $78 respectively. If Baker undergoes a 2-for-1 stock split, what is the new div

Benefits ordinary share capital - financing, Benefits Ordinary Share Capita... Benefits Ordinary Share Capital - Financing Benefits of using ordinary share capital in the financing They facilitate projects particularly long-term projects since they

Growth and valuation ratio, Growth and Valuation Ratio This ratio indi... Growth and Valuation Ratio This ratio indicates the growth potential of the firm in addition to determining the value of the firm and investment made via various investors.  T

Homework, the two problems below (P1 and P2). Five marks each. Part marks w... the two problems below (P1 and P2). Five marks each. Part marks will be allocated, but if you have the incorrect answer then you cannot expect to get more than half marks. Project

Overdraft finance, Overdraft Finance This finance is perfect to need a... Overdraft Finance This finance is perfect to need as bridging finance in sense such should be required to solve the company's short term liquidity problems in specific those o

Liquidity Management, Objective of Liquidity management? Objective of Liquidity management?

Inevestments, 1) What happens to the portfolio standard deviations as the i... 1) What happens to the portfolio standard deviations as the investor substitutes the foreign securities for the U.S securities? What combination of U.S and Japanese stock minimizes

Finance, finance is divided into _____ and___________ finance is divided into _____ and___________