I though it was… maybe just a little tired? If you please could let me know why you chose the method also - this is what is confusing me? (i.e. which derivate of the GGM used) A firm has the following characteristics: Current share price $100.00 One-year earnings $3.50 One-year dividend $0.75 Required return 13 percent Justified leading price to earnings 10 Based on the dividend discount model, what is the firm’s assumed growth rate? A) 10.9%. B) 8.6%. C) 11.4%. D) 12.4%.
I did a lot of playing around with the numbers. I got close to B and D, but I got an exact number for A. 10 = DPR/(r-g) 10 = (.75/3.5)/(.13-g) 10 = .214285714/(.13-g) 1.3 - 10g = .214285714 -10g = -1.085714286 g = .108571 = 10.9%
the answer is a…use the justified price multiple version of Gordon. justified leading P/E=(d/e)/(r-g) or simplified justified leading p/e =dividend payout/(r-g) thus the calcs you see from niblita REMEMBER if it is trailing you would have justified trailing P/E=((d/e)(1+g))/(r-g)
A using justified leadin P/E formula… 10 = (.75/3.5) / (.13 - g) g = 10.9%
omg. i got this…