The stock of AMD Graphics Co. paid a dividend of $0.6 per share last year on...

The stock of AMD Graphics Co. paid a dividend of $0.6 per share last year on earnings of $1.00 per share. The firm’s dividends and earnings are expected to growth at 7% per year forever. Shareholders require a return of 10% on their investment. Assuming the payout ratio is constant, the justified leading P/E ratio is:

a. 20.0
b. 12.0
c. 12.8
d. 9.0
e. 8.6

Solutions

Expert Solution

Price per share =Dividend/(Return-growth) =0.6*(1+7%)/(10%-7%) =21.40
P/E ratio =21.40/(1*(1+7%) =20 (Option a is correct option)

jeff jeffy answered 1 year ago

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