The common stock of Permanent Assurance Corporation currently trades at $40.00 per share, which is approximates its intrinsic value. The company has announced plans to maintain its dividend next year at $1.20 per share. Your research indicates that historically, the firm's dividend payout ratio has averaged 50% while its return on equity averaged 9.0%. The book value of the shares is $25.00 and research shows there is relatively low variation in the firm's operations. You believe the firm's payout ratio and ROE should continue at their historic levels in the future over the long term. Enter your answers on the spreadsheet. If the firm's ROE is forecast to decline to 8% in the future due a change in industry conditions, the firm's long term PE multiple would be expected to: Increase Decrease Remain unchanged. There is not enough information to answer the question. None of the above answers is correct.
The common stock of Permanent Assurance Corporation currently trades at $40.00 per share, which is approximates its intrinsic value. The company has announced plans to maintain its dividend next year at $1.20 per share. Your research indicates that historically, the firm's dividend payout ratio has averaged 50% while its return on equity averaged 9.0%. The book value of the shares is $25.00 and research shows there is relatively low variation in the firm's operations. You believe the firm's payout ratio and ROE should continue at their historic levels in the future over the long term. Enter your answers on the spreadsheet. If the firm's ROE is forecast to decline to 8% in the future due a change in industry conditions, the firm's long term PE multiple would be expected to: Increase Decrease Remain unchanged. There is not enough information to answer the question. None of the above answers is correct.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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20 - The common stock of Permanent Assurance Corporation currently trades at $40.00 per share, which is approximates its intrinsic value. The company has announced plans to maintain its dividend next year at $1.20 per share. Your research indicates that historically, the firm's dividend payout ratio has averaged 50% while its
- If the firm's ROE is
forecast to decline to 8% in the future due a change in industry conditions, the firm's long term PE multiple would be expected to:
- Increase
- Decrease
- Remain unchanged.
- There is not enough information to answer the question.
- None of the above answers is correct.
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