Question

You
forecast a company to have a ROE of 10%, a dividend payout ratio of
35%. Currently the company has a price of $30 and $8 earnings per
share. What is the company's PEG ratio based on market
price?

Answer #1

**Given,**

**ROE = 10% or 0.10**

**Dividend payout ratio = 35% or 0.35**

**Price = $30**

**Earnings per share = $8**

**Solution :-**

**Earnings growth rate = ROE x (1 - dividend payout
ratio)**

**= 0.10 x (1 - 0.35)**

**= 0.10 x 0.65 = 0.065 or 6.50%**

**P/E ratio = Price
earnings per share**

**= $30
$8 = 3.75**

**PEG ratio = P/E ratio
Earnings growth rate**

**= 3.75
6.50% = 0.5769**

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