Question

Joker stock has a sustainable growth rate of 10 percent, ROE of 12 percent, and dividends per share of $1.30. If the PE ratio is 17.0, what is the value of a share of stock? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Answer 1

Answer:value of a share of stock=$132.57

Step-by-step explanation:

Sustainable growth rate = Retention ratio x ROE

= ROE X (1-Payout ratio)

10% = 12% x 1-payout ratio

10%/12%= 1-payout ratio

0.8333= 1-payout ratio

payout ratio= 1- 0.833=0.1667= 16.67%

Dividend payout ratio= dividend per share/Earnings per share

16.67%=$1.30/ earning per share

Earnings per share =1.30/ 16.67%= $7.7984

Value of a share of stock using the P/E ratio

P/E ratio= value of stock / Earning per share

17= value of stock/earning per share

value of stock= 17 x 7.7984= $132.57