Explore BrainMass

Explore BrainMass

    Firm ABC: Computer earning multiplier in four scenarios

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    The dividend payout ratio for firm ABC is 60%, k is 13% and the expected growth of dividends is 7%.

    a) What is the current earnings multiplier?
    b) You expect the payout ratio to decline to 50%, all else equal. What is the new earnings multiplier?
    c) With the payout ratio at 60%, the rate of inflation increases 3% while the growth rate increases 2%. What is the new earnings multiplier?
    d) With the payout ratio at 60%, the rate of inflation is expected to drop by 3% while the growth rate decreases by 1%. What is the new earnings multiplier?

    © BrainMass Inc. brainmass.com June 3, 2020, 11:08 pm ad1c9bdddf
    https://brainmass.com/business/accounting/firm-abc-computer-earning-multiplier-four-scenarios-264915

    Solution Preview

    a) We know that P0=D0*(1+g)/(k-g)
    Divide both sides by E0, we get P0/E0 = (D0/E0)*(1+g)/(k-g) = DPS0*(1+g)/(k-g)
    P0/E0 = ...

    Solution Summary

    The solution computes earning multiplier in four scenarios for Firm ABC. The payout ratio is determined.

    $2.19

    ADVERTISEMENT