CORPORATE FINANCE

Explain how (a) the payout rate, (b) the expected dividend growth rate, and (c) the required rate of return affect the P/E ratio. Answer: To answer this question, substitute the DDM into the P/E formula. P/E = P0 = D1/(k – g) = D1/E1. E1 E1 k – g. From the above formulation, one can see that (a) a higher payout will increase D1 causing a ... ................
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