True/false from Schweser Mock 2 PM

True/false: When firms pay out profits as dividends at a higher rate, a firm’s intrinsic P/E value decreases.

true. As RR goes down, g goes down, so g/(r-g) term goes down, so franchise PE goes down, so intrinsic PE goes down.

yeah i was thinking about it in terms of payout/(r-g) i guess it’s meaningless for this problem, time to memorize another formula

I’ve never really understood the use of the franchise factor [(1/r)-(1/RoE)]. It seems like the same thing as ROE-r. I remember this equation by the pained, gutteral sound I made when I read it, something like “grrrrg” --> g/(r-g), and I remember FF just because I think it’s odd.