Currently, the dividend payout ratio (Dividend / Earnings) for the aggregate market is 55.0 percent, the required return (k) is 10.0 percent, and the expected growth rate for dividends (g) is 5.50 percent.
a. Compute the current earnings multiplier (P/E ratio).
b. You expect the payout ratio to decline to 45.0 percent, but you assume there will be no other changes. What will be the P/E?
c. Starting with the initial conditions, you expect the dividend payout ratio to be constant, the rate of inflation to increase by 2.0 percent, and the growth rate to increase by 1.5 percent. Compute the expected P/E.
d. Starting with the initial conditions, you expect the dividend payout ratio to be constant, the rate of inflation to decline by 2.0 percent, and the growth rate to decline by 1.5 percent. Compute the expected P/E.