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No-Growth Industries pays out all of its earnings as dividends. It will pay its next $5...

No-Growth Industries pays out all of its earnings as dividends. It will pay its next $5 per share dividend in a year. The discount rate is 12%.

a. what is the price earnings ratio of the company?

b. what would the p/e ratio be if the discount rate were 10%?

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Answer #1
It will pay all its earning as dividend.It means earning and dividend is same.
a. Price earning ratio = Current Price/Earning per share
= $   41.67 / $    5.00
=        8.33
Working:
Price = Dividend of next year/Discount rate
= $    5.00 / 12%
= $   41.67
b. Price earning ratio = Current Price/Earning per share
= $   50.00 / $    5.00
=      10.00
Working:
Price = Dividend of next year/Discount rate
= $    5.00 / 10%
= $   50.00
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