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?
Market price per share=$40
Earning per share=$5
PE Ratio=Market ...
Solution depicts the steps to estimate the P/E Ratio and required rate of return in the example case of ABCO.