Earnings Multiplier Model

Earnings Multiplier Model - 11-1Earnings Multiplier...

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Unformatted text preview: 11-1Earnings Multiplier ModelP/E Ratio: This values the stock based on expected annual earningsPrice/Earnings Ratio= Earnings Multiplier EarningsMonth -12ExpectedPriceMarket Current =11-2Earnings Multiplier ModelCombining the Constant DDM with the P/E ratio approach by dividing earnings on both sides of DDM formula to obtain Thus, the P/E ratio is determined byExpected dividend payout ratiogkEDEPi-=111/11-3Earnings Multiplier ModelAssume the following information for AGE stock (1) Dividend payout = 50% (2) Required return = 12% (3) Expected growth = 8% (4) D/E = .50 and the growth rate, g=.08. What is the stocks P/E ratio? What if the required rate of return is 13%What if the growth rate is 9%7.1603./50..09-.12.50P/E===.1005./50..08-.13.50P/E===5.1204./50..08-.12.50P/E===11-4Earnings Multiplier ModelIn the previous example, suppose the current earnings of $2.00 and the growth rate of 9%. What would be the estimated stock price?...
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Earnings Multiplier Model - 11-1Earnings Multiplier...

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