oh boy this is tricky…and I’m not sure what’s wrong with A. If your payout is zero, your retention ratio = 1.00, so g=ROE, a larger g, which would make the denominator lower, thus increasing P/E.
Dreary Wrote: ------------------------------------------------------- > oh boy this is tricky…and I’m not sure what’s > wrong with A. If your payout is zero, your > retention ratio = 1.00, so g=ROE, a larger g, > which would make the denominator lower, thus > increasing P/E. but then the div on top of the equation would be zero and the stock would be worth nothing (In general)
A) Retention ratio is higher. ----> Lower payout - > lower numerator …> low P/E B) risk-free rate is higher. ----> Higher cost of equity…> higher denomonator …> low P/E C) The stock’s beta is lower. ---- Lower cost of equity…> lower denomonator …> High P/E D) Return on equity (ROE) is lower. -----Lower growth rate ----higher denomonator …> low P/E
I like this one.
GREAT thread, thanks,