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Joker stock has a sustainable growth rate of 8 percent, ROE of 18 percent, and dividends per share of $3.35. If the P/E ratio is 18.7, what is the value of a share of stock? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Respuesta :

beritop1089

Answer:

112.70

Explanation:

First, use the formula for sustainable growth rate to find retention rate;

SGR = ROE *retention rate

0.08 = 0.18* retention rate

retention rate = 0.08/0.18

retention rate = 0.444 or 44.4%

This means that dividend payout ratio = 1 - 0.444 = 0.556 or 55.56%

Earnings per share = $3.35/0.556 = $6.025

Give P/E ratio of 18.7,

price per share = 18.7 *6.025 = $112.70