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

ID: 2659734 • Letter: N

Question

No-Growth Industries pays out all of its earnings as dividends. It will pay its next $2 per share dividend in a year. The discount rate is 10%.

a. What is the price-earnings ratio of the company? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

P/E ratio

b. What would the P/E ratio be if the discount rate were 5%? (Round your answer to 2 decimal places.)

P/E ratio

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Worksheet Difficulty: Intermediate Learning Objective: 07-04 Interpret price-earnings ratios.

No-Growth Industries pays out all of its earnings as dividends. It will pay its next $2 per share dividend in a year. The discount rate is 10%.

a. What is the price-earnings ratio of the company? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

P/E ratio= 1/discount rate

P/E ratio= 1/0.10

P/E ratio= 10

b. What would the P/E ratio be if the discount rate were 5%? (Round your answer to 2 decimal places.)

P/E ratio= 1/discount rate

P/E ratio= 1/0.05

P/E ratio= 20

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