Asked by
Jisell Garaboa
on Oct 19, 2024
Verified
The market capitalization rate on the stock of Aberdeen Wholesale Company is 10%. Its expected ROE is 12%, and its expected EPS is $5. If the firm's plowback ratio is 60%, its P/E ratio will be ________.
A) 7.14
B) 14.29
C) 16.67
D) 22.22
Plowback Ratio
The Plowback Ratio, also known as the retention ratio, measures the proportion of earnings that are retained by the company rather than paid out as dividends.
P/E Ratio
Price-to-Earnings Ratio, a valuation metric comparing the current share price of a company to its per-share earnings.
ROE
Return on Equity, a financial ratio that measures the profitability of a corporation in relation to stockholders' equity.
- Comprehend the concept of market capitalization rate and its impact on stock valuation.
- Calculate and interpret Price-Earnings (P/E) ratios and how they are affected by various factors.
- Acquire knowledge about the significance and calculation methodology of the plowback (earnings retention) ratio with respect to growth and valuation.
Verified Answer
AB
Learning Objectives
- Comprehend the concept of market capitalization rate and its impact on stock valuation.
- Calculate and interpret Price-Earnings (P/E) ratios and how they are affected by various factors.
- Acquire knowledge about the significance and calculation methodology of the plowback (earnings retention) ratio with respect to growth and valuation.