Quick question, I am doing this excercise that asks for the forward earning multiplier
Stock beta: 1.1
Risk free rate: 5%
Market risk premium expected to be 8%
ROE expected to be constant at 18% and dividend payout ratio fairly constant at 40%
So they solve as follows:
Requeired return first: 5%+1.1 (8%)=13.8%
Sustainable growth: 18% (1-0.4)=10.8
All of that is clear.
Now, when they solve for the multiplier they do:
Do we use the payout ration on the numerator to find out forward multiplier?
Thank you very much for your time