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What kind of return on equity could explain investors' willingness to pay a price equal to 50 times earnings on this stock?

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Reedsburg Associates is currently paying a dividend of $ 0.40 per share on earnings of $ 4 per share. Its stock is selling for $200 per share. Stocks of similar risk are priced to return 15%. What kind of return on equity could explain investors' willingness to pay a price equal to 50 times earnings on this stock?

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The expert determines what kind of return on equity could explain investors' willingness to pay a price equal to 50 times earnings on this stock.

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The price of any asset represents the net present value of the cash flows generated by that asset. If ...

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Manal Elkhoshkhany, MBA
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  • MBA, California State University, Sacramento
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