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Question
Brotech Unlimited sells at $40 per share, and its latest 12 month earnings were $8 per share, of which $3.20 per share were paid as dividends. (a) What is Brotech's current P/E ratio?(b) If Brotech's earnings are expected to grow by 9 percent per year, what is the projected price for next year assuming that the P/E ratio remains constant?
(c) If you had a required rate of return of 15 percent, expected the dividend payout ratio to remain constant, and dividends to grow at a rate of 9 percent, would you buy this stock? Explain your answer.
Answer
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