Current dividend per share ( Do) paid on the company common stock $5.00
Required rate of return on the company common stock 15.5%
Expected constant growth rate in earnings and dividends7.5%
The value of a share of the company's stock and the leading price/earnings (P/E) ratio, respectively, are closest to:
Value of stockLeading P/E ration（）
①A. $40.137.5
②B. $67.198.0
③C. $67.197.5
A. ①
B. ②
C. ③
参考答案：C
解析：
The constant growth dividend model and the earnings multiplier model will result in the same value for a share of stock. Using the constant growth model the value is ($5.00) (1.075) or $5.375 divided by the required rate of return minus the growth rate: $5.375/0.08=$67.188. The earnings multiplier is the dividend payout ratio divided by the required rate of return minus the growth rate: 0.6/0.08=7.5.
