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ABCO: Estimate the P/E ratio and required rate of return

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Abco corporation anticipates a 10 percent growth in net income and dividends. Next year, the company expects earnings per share of $5 and dividend per share of $4. Abco will be having its first public issuance of common stock. The stock will be issued at $40 per share?

a) What is P/E Ratio?
b) What is required rate of return on the stock?

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Solution Summary

Solution depicts the steps to estimate the P/E Ratio and required rate of return in the example case of ABCO.

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a)
Given
Market price per share=$40
Earning per share=$5

PE Ratio=Market ...

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  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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