a) Practitioners often argue that the present value model, although fine in theory, is unworkable in practice and that the earnings capitalisation model (otherwise known as the P/E model or sustainable earning model) is more applicable. Why is this an ill-conceived view of the present value model?
b) XYZ Ltd has a current share price of $4.89 and paying dividends of $0.66 per share. If the assumption underlying the earnings capitalisation model hold, what is the value of XYZ's P/E multiplier?